Blog · 16 October 2026

Sales Tax Exemption Certificates: What the Senate AI Data Center Report Teaches US CPA Firms About Business Purchases

By Keshav Bansal, CA

Sales tax exemption certificates are the paperwork behind one of the biggest state tax breaks, and a new Senate report has put them in the news. On October 9, 2026, Senators Elizabeth Warren, Chris Van Hollen and Richard Blumenthal released “Power and Profits: How the AI Data Center Boom Costs Households and Communities,” a 27-page report based on responses from Amazon, Google, Meta, Microsoft, CoreWeave, Digital Realty and Equinix. The companies said they will keep seeking sales tax exemptions on business purchases of chips and other equipment, which the report calls “the most valuable form of tax break for data centers.” The lesson for US CPA firms is the default rule underneath: equipment a business buys for its own use is usually taxable, and an exemption holds up only if the certificate does.

What the report says about sales tax

The report comes from three Democratic senators (Bloomberg Tax’s Chris Cioffi covered it on October 9), so treat its conclusions as advocacy. Its sourced data points:

• Breadth. As of April 2026, a majority of states offered tax incentives specifically for data centers, and all of them included some form of sales tax exemption. The report says these typically cover “everything from server racks to data-storage systems, fiber-optic cabling, and stand-by power generators.” Fourteen states also exempted the electricity data centers use, and 11 offered a statewide property tax break.
• Equipment. The report cites an estimate that GPUs account for 39 percent of spending on the average 1 gigawatt AI data center. Microsoft confirmed it will keep seeking state sales tax exemptions for chips and other equipment.
• Cost. Virginia’s exemption cost the state more than $1.9 billion in FY2025. In April 2026, the Texas comptroller’s office estimated that data center sales tax exemptions will cost $3.2 billion over the next two years.

The default: the business end user pays

Sales tax is meant to fall on the final consumer, and a business that buys equipment for its own use is that consumer. Texas states the starting point in 34 Tex. Admin. Code §3.285: “All gross receipts of a seller are presumed subject to sales or use tax unless a properly completed resale or exemption certificate is accepted by the seller.” A data center exemption is a deliberate incentive, not the norm.

• Resale certificates. Under §3.285, a Texas permit holder may issue a resale certificate instead of paying tax on an item it intends to resell, lease, rent or transfer as an integral part of a taxable service. It may not issue one for an item it knows, at purchase, it will use or consume itself. If an item bought for resale is put to another use, the purchaser owes the tax. The aim is to tax the item once, at the final sale.
• Use- and entity-based exemptions. These depend on how the buyer will use the item, such as qualifying data center equipment, or on who the buyer is. They are claimed with an exemption certificate, a registration number or a direct pay permit, depending on the state.

How certificates protect the seller, and who pays when they fail

A valid certificate shifts the risk from the seller to the buyer. Section 317 of the Streamlined Sales and Use Tax Agreement (as amended through December 20, 2024) requires member states to relieve a seller that follows its rules and to hold the purchaser liable if the exemption was improperly claimed:

• 90 days. The seller is relieved if it obtains a fully completed certificate, or captures the required data elements, within 90 days after the sale (§317(C)).
• 120 days on audit. If the seller missed that window, it has 120 days after a state requests substantiation. It can then obtain a certificate taken in good faith (an exemption statutorily available, that could apply to the item and is reasonable for the purchaser’s business) or otherwise prove the sale wasn’t taxable (§317(D)).
• Blanket certificates. Where no more than twelve months pass between sales, a member state may not ask the seller to renew a blanket certificate (§317(F)).

The Streamlined certificate instructions warn purchasers they will be held liable for tax and interest, and possibly penalties, if the purchase is not exempt. Non-member states write their own rules. Under Texas §3.285, a resale certificate is accepted in good faith if it is taken at or before the sale, it is properly completed, and the seller doesn’t know or have reason to know the sale isn’t for resale. Its example: a jewelry seller should know a resale certificate from a landscaping service is invalid. Texas sellers must keep resale certificates for at least four years. Incomplete certificates are disallowed on audit no matter when they were obtained.

Worked example: the Texas data center certificate

The Texas Comptroller’s data center page shows how this works. A qualifying data center needs at least 100,000 square feet, and its owner, operator or occupant must commit to at least 20 qualifying jobs in the county and at least $200 million of capital investment over five years. The exemption applies only to the 6.25 percent state tax, so the retailer still collects local tax, and it lasts 10 or 15 years depending on the investment.

• The purchaser claims the exemption on Form 01-929, which lists both the data center’s registration number and its own. The Comptroller says this is the only documentation a seller can accept for the exemption.
• The retailer must be able to match tax-free invoices to the certificate, for example by printing the registration numbers on each invoice. A retailer is not required to accept an exemption certificate.
• If the certification is revoked for missing the job or investment commitments, each party whose registration number is revoked owes the state tax on all its tax-free purchases under the program, plus penalty and interest from the date of purchase.

The federal side: basis, not a deduction

Under 26 U.S.C. §164(a), a tax paid or accrued in connection with acquiring property is treated as part of the property’s cost. Sales or use tax paid on a server is added to its basis and recovered through depreciation. An exemption lowers basis by the same amount.

Checklist for US CPA firms

• Sellers: collect certificates at onboarding, track the 90-day window and flag certificates that don’t fit the customer’s business. For built-up exposure, see our Streamlined remote seller voluntary disclosure guide.
• Buyers: review fixed-asset and AP invoices for untaxed purchases with no valid exemption, and accrue use tax where it is owed. See our sales tax vs use tax and Wayfair guide.
• Incentive clients: keep job and investment records, because revocation can bring back years of tax.
• Books: code exempt purchases consistently so the ledger, fixed assets and returns agree. Our QBO cleanup handoff checklist covers how to hand those records over.

Where Tax Brew fits

Tax Brew supports US CPA firms with bookkeeping, use tax accrual reviews and exemption certificate tie-outs, so reviewers can test sales tax positions before an auditor does. Your firm keeps the advice and the signature. The first 20 hours are free for qualifying engagements. See our services, or email info@taxbrewglobal.com.

Sources: Sens. Warren, Van Hollen and Blumenthal, “Power and Profits: How the AI Data Center Boom Costs Households and Communities” (October 2026) and press release (Oct. 9, 2026); Chris Cioffi, “Tax Breaks Partly Fuel Data Center Boom, Democratic Report Says,” Bloomberg Tax (Oct. 9, 2026); Streamlined Sales and Use Tax Agreement §317 (as amended through Dec. 20, 2024) and SSUTA Certificate of Exemption instructions; 34 Tex. Admin. Code §3.285 (Cornell LII); Texas Comptroller, “State Sales Tax Exemption for Qualifying Data Centers and Qualifying Large Data Center Projects” and Form 01-929; 26 U.S.C. §164(a) (Cornell LII). Check current state guidance; as of 16 October 2026.