Data Centers and Property Tax in Quebec: Navigating Uncharted Waters
Submitted by: Mohamed Kaisserli, David Sauvé s.e.n.c.r.l., Montréal, QC
If you work relatively close to real estate, you’ve probably noticed that data centers are popping up everywhere, and with them, a whole new set of headaches for assessors, municipalities, and property owners alike. In Quebec, the collision between these 21st-century facilities and a legislative framework designed for a more traditional economy has created what can only be described as a perfect storm of legal questions. And the storm isn’t over yet.
Here’s a quick update on where things stand.
The Problem: Square Pegs, Round Holes
Quebec’s Loi sur la fiscalité municipale (LFM) provides several exemptions from the property assessment roll. Among the most significant are Article 65, which excludes machinery and equipment used for “industrial production,” and Article 67, which excludes constructions forming part of a wired telecommunications network.
However, these provisions were designed decades ago, long before anyone imagined buildings consuming more than 25 megawatts of electricity just to keep servers humming, which equates the consumption of a small neighborhood.
Data centers don’t fit at all into any of the traditional categories. They aren’t factories in the classic sense. They don’t produce tangible goods or refine petroleum. But they aren’t ordinary office buildings either. They consume staggering amounts of energy, own sophisticated and complicated equipment, and play a critical role in the modern digital economy. So where do they belong under the LFM? That is the multi-million-dollar question currently being litigated in Quebec.
Round One: The Industrial Production Argument
The first wave of litigation tested whether data center equipment, such as generators, electricity transformers, ultra-specialized HVAC units, could be exempt from assessment as machinery (or its accessories) used for industrial production under Article 65 LFM.
In 2748134 Canada Inc. (Vantage QC4) v. Montréal, 2024 QCTAQ 08459, the applicant argued that the purpose of servers, in the data centers, is to transform electricity and data into new digital products. These “digital products” are the songs, movies, videos and other digital “goods” that we used to buy in a store, but we don’t anymore because of the laziness of the human nature.
In that case, expert testimony described how CPU servers use electrical signals to create sequences of binary code, generating everything from Google Maps results to Netflix streams. Therefore, the applicant argued that electricity and data are the “raw materials,” the servers are the “machines,” and the output, the “digital goods” is the “product.”
The Tribunal administratif du Québec (TAQ) said no. In their decision rendered on August 23, 2024, the TAQ concluded that data processing is in nature a service activity and not an industrial production. The TAQ noted that the current provision of the LFM targets only the primary (economy involved in the extraction and harvesting of natural resources) and secondary (industries that manufacture, process, and construct finished or semi-finished goods) sectors of the economy. Considering, according to the TAQ, that Data processing belongs to the tertiary (services) sector, we cannot conclude that data centers indeed do industrial production.
It goes without saying that the TAQ’s conclusion rests more on a historical analysis of the legislation than on an application of it.
A few months later, in 4Degrés Colocation Inc. (Vantage QC1) v. Montréal, 2025 QCTAQ 01346, rendered January 21, 2025, a different panel of the TAQ reached the same conclusion on substantially similar facts.
Both decisions have been granted leave to appeal to the Cour du Québec, so the industrial production question is far from settled. The higher courts will have the final say.
Round Two: A New Approach — Telecommunications
While the industrial production argument was making its way through the TAQ, another approach was presented.
In the Fall of 2025, in the case of Centres de données eStruxture inc. v. Montréal and Kirkland, a different argument was presented: data center equipment is “constructions” forming part of a telecommunications network under Article 67 LFM, and should therefore be exempted from taxation.
The reasoning goes like this: the Internet is, by definition, a telecommunications network that transmits data by optical wire. Data centers are not just buildings that house servers; they are essential nodes within the Internet’s architecture. Without them, the modern Internet simply could not function, as it would be a network without any data.
Indeed, Internet telecommunications operates and crucially depends on the availability of data. That cute cat video, the email you sent this morning or even this article is somewhere in a data center, and it flies into your device (inside an optical wire) from a data center. However, none of that would be possible without the sophisticated equipment inside a data center, such as the generators and HVAC systems.
Therefore, there is an interesting argument to say that data centers, as the backbone of Internet, are part of a telecommunications network.
As of this writing, the TAQ has not yet rendered its decision on the telecommunications argument. The industry is watching closely.
What’s Next?
Quebec is at a crossroads. Two first-instance decisions have rejected the industrial production theory for data centers, but appeals are pending. The telecommunications argument has been fully argued but not yet decided.
One thing is clear: the current legislative framework exemptions, that were established in a non-digital era, were not designed with data centers in mind. Whether the courts adapt the existing rules to this new reality, or whether the legislature will need to intervene, remains to be seen. Either way, this is a space worth watching, and not just in Quebec. As data centers continue to proliferate across Canada, the questions being asked here will inevitably arise elsewhere.
Stay tuned. The storm isn’t over.