Data Center Tax Incentives Prompt Growing Industry Investments

February 12, 2014

"In today's technologically advanced landscape, business and individual customers are increasingly demanding more services requiring data center support. In response to these needs, some facility operators are adding capacity to existing structures. Others that have exhausted the potential of their current data centers choose to construct additional buildings to house the rows of servers needed to power cloud, colocation and a wide range of other services.

When organizations are looking to expand their footprint, one of the aspects they consider are the tax incentives offered in a certain area. CBRE noted that when administrators create a list of possible locations, regions offering tax breaks and other benefits can quickly jump near the top of the lineup. Additionally, state officials leverage incentives to grow the data center industry in their borders.

""Taxes and incentives are the only tools a state or community has control over to win data center locations,"" CBRE noted. ""Typically, the larger the project investment the more important role incentives tend to play in the overall site evaluation.""

Types of data center tax incentives
Currently, there are 17 states that offer benefits for data center organizations choosing to locate facilities there. Within these regions, there are three main types of incentives being provided to encourage data center construction.

Many states offer sales or use tax exceptions for these groups, which enables businesses to be exempt from sales tax on the purchase of building material, mechanical or electrical equipment, IT systems or software. CBRE stated that with building material tax breaks, the benefits depend on the location of the purchase. For example, if a developer wants to build a data center in a state that does not offer this incentive, they can purchase their materials in another state and relocate them to the construction site. Equipment sales tax exemptions, however, depend upon where hardware or arrangements are being delivered.

Some regions may provide real estate tax cuts to data center organizations, which owners pay on an annual basis. These taxes include a portion of the building value and the local effective tax rate. Certain states also offer personal property tax discounts, or rates payable on any equipment that can be removed from the data center such as servers, furniture, computers and other things. Operators pay annually depending on the original price of the item, depreciation and the local rate.

Spotlight: Virginia tax incentives
A region of Virginia in Loudoun County near Ashburn has become known as ""Data Center Alley"" due to the sheer number of data center developers that have facilities there. Many organizations are encouraged to build there due to the state's tax incentives, including DuPont Fabros Technology, which recently invested more than $900 million in the area.

The state offers a sales and use tax exemption for data center businesses, which prevents them from paying the tax percentage upon purchasing or leasing IT equipment or software. The exemption also includes mechanical and electrical equipment, providing significant value to companies throughout the building and development process. However, these businesses must invest at least $150 million and establish 50 new employment positions with their data center projects.

Texas boosts incentives
Last year, Texas increased the advantages for data center developers looking to construct facilities in the state. According to Dallas Economic Development, the state recently passed legislation for relative cost breaks and sales tax incentives. The approved bill provides a 100 percent sales tax exemption on IT, mechanical and electrical equipment, software, cooling systems, power infrastructure resources, electricity and backup fuel for 10 to 15 years.

In order to be eligible for the benefits, organizations must have facilities of 100,000 square feet or more, invest at least $200 million and create 20 new positions which pay 120 percent of the average wage in the county.

South Carolina offers incentives
The South Carolina Department of Commerce also announced the availability of tax incentives for data center organizations. The state has a sales and use tax exemption which can be applied to the purchase of computing systems and software, as well as electricity utilized directly for data center operations.

Qualifying organizations must be certified by the department of commerce, and invest $50 million in company or personal property over five years, or $75 million with additional companies. These groups must also establish 25 new jobs within five years that pay 150 percent of the average wage. These positions must also be maintained for at least three years."



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    "In today's technologically advanced landscape, business and individual customers are increasingly demanding more services requiring data center support. In response to these needs, some facility operators are adding capacity to existing structures. Others that have exhausted the potential of their current data centers choose to construct additional buildings to house ...