AI data centres present challenging indirect tax issues

Recent projections indicate that global AI spending on infrastructure and data centres may top USD400 billion annually in the foreseeable future. For US projects, issues to be considered include contract discussions, sophisticated real estate planning, assessing energy supply requirements and negotiating preferential high-stakes tax incentives that may be tied to a variety of factors, including the number of jobs expected to be created. In addition, the establishment of these facilities may create tax opportunities and pitfalls, depending upon the location of the facility and the investment structure. From a tax perspective, pertinent issues to be reviewed include the specific requirements of state manufacturing and resale exemptions for equipment and machinery purchases as well as available research and development credits. In some cases, advance rulings from state revenue agencies may prove beneficial in identifying the tax ramifications of a particular investment arrangement and thereby facilitate planning for the structure. As a result, such projects require the retention of an experienced multi-jurisdictional, multi-discipline legal and tax team to coordinate the multitude of tax and other legal considerations.

Key takeaway

The establishment and operation of AI data centres in the United States implicates a number of tax and other legal concerns. The issues vary among different parties, such as owners, operators or AI companies (who are often lessees using the facility), and are therefore unique to each situation. Moreover, different tax consequences might arise in different states. Accordingly, businesses pursuing activities in this area would be well-advised to consider a legal team that is able to navigate the various concerns and considerations.