Appeals Court Partly Sides With Fairfax County In Data Center Tax Records Dispute

RESTON, VA — A Virginia appeals court ruled Monday that Fairfax County has broad authority to investigate whether customer-owned equipment stored in CoreSite data centers is subject to local taxes, but said the county’s January 2024 summons seeking customer records cannot be enforced as written.

The Court of Appeals of Virginia affirmed in part and reversed in part a Fairfax County Circuit Court ruling in a dispute between CoreSite LLC, which operates four data centers in Reston and Fairfax County. The appellate court sent the case back to the circuit court with instructions to vacate any order enforcing the county’s January 2024 summons.

What Fairfax County Wanted

The appeal centered on whether Fairfax County could require CoreSite to provide customer names and related records so the county could determine whether those customers were paying taxes on customer-owned equipment stored inside CoreSite’s data centers. The company provides about 300 customers with access to servers and cloud storage, and it leases space to some customers to store and use their own equipment, according to the opinion.

CoreSite appealed after the circuit court ruled in favor of the county. The company challenged the county’s authority to demand the records, arguing that the county could seek information only about known taxpayers, that the county failed to identify any specific taxpayer in its summons, and that CoreSite’s customer agreements barred the company from disclosing customer information.

Judge Kevin M. Duffan, writing for a three-judge panel, said the county’s general tax-investigation authority is broad enough to let officials seek information needed to determine whether equipment in data centers is taxable. The court said limiting the county to only customers already known to be taxpayers would undercut the county’s ability to make a complete tax assessment.

What The Ruling Does

But the court also ruled that the county’s summons failed to meet a separate requirement under Virginia law because it did not “specifically identify” taxpayers. The county had sought a complete list of all current tenants and other entities leasing, contracting, using space or receiving services in the buildings, along with related leases or service contracts. The court said those broad categories may include taxpayers, but they do not specifically identify them.

The ruling means Fairfax County cannot enforce the January 2024 summons as issued. However, the court said nothing in its opinion prevents the county from seeking information from CoreSite through a new summons that complies with state law.

The court also rejected CoreSite’s argument that its customer confidentiality agreements barred disclosure to the county. The opinion said the agreements include a carveout allowing CoreSite to provide information required by a governmental entity, and that a court order is not required for governmental requests under the contract language.

The case was argued in Fredericksburg and issued on June 16. The panel included Judges Dominique Callins Chaney, Stuart A. Raphael Friedman and Duffan.

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