Facts

Digital Realty Trust Inc. is a real estate trust corporation which invests in data centers and provides colocation and peering services across the United States and in other countries. Digital Realty filed 2020 Annual Business Tax Returns for its data center locations at 365 Main Street and 200 Paul Avenue in San Francisco. They made filings for Commercial Rents Tax, Gross Receipts Tax, and Homelessness Gross Receipts Tax. The filings resulted in a total liability of $3,144,044.66 with a final amount paid on April 29, 2021. Commercial Rents Tax, which is imposed on gross receipts from the lease or sublease of actual commercial or industrial space, resulted in $2,806,189.41 being paid. However, colocation revenues from providing power, cooling, physical security for server, storage, and networking equipment do not constitute receipts from the lease of actual space. On April 28, 2022, Digital Realty presented a refund claim to the City and County of San Francisco (City), but the City failed to respond to the claim. On April 18, 2023, Digital Realty brought a lawsuit against the City for a refund of the excess amounts of business taxes collected on the Commercial Rents Tax and Homelessness Gross Receipts Tax.

PLAINTIFF'S CONTENTIONS: Plaintiff sought a refund of an overpayment of the Commercial Rents Tax based on a reduction in the amount of gross receipts from leases reported. Plaintiff maintained that a portion of the revenue used in calculation of the Commercial Rents Tax did not constitute revenues from lease of commercial space, but rather, was derived from other colocation services it rendered that should not constitute receipts from the lease of actual space. Additionally, plaintiff contended that defendant failed to deduct the Commercial Rents Tax from gross receipts utilized for purposes of the Homelessness Gross Receipts Tax and this failure resulted in overpayment of that tax as well.

DEFENDANT'S CONTENTIONS: Defendant denied all contentions.

Result

The City and County of San Francisco agreed to pay $1,858,151 to settle all claims.