Tax Incentive Trend: Officials Offer Breaks to Attract Data Center Business

15 Jul 2014 by Technology

"Recently, Montgomery County in Maryland became the newest in a long list of areas offering tax incentives to attract data center companies to do business in their region. According to InTheCapital, this trend has reached the national scale, as local and state governments realize the benefits that being a data center hub can offer.

Montgomery County's $12 million incentive plan
The source reported that as part of these efforts, Montgomery County has announced the availability of $12 million in tax rebates for companies that house their IT infrastructure in the ByteGrid Holdings Silver Spring data center.

The multi-million dollar incentive package includes breaks on personal property taxes for organizations that lease space in the ByteGrid data center. ByteGrid CEO Ken Parent noted that this offering makes the region even more favorable and illustrates that the county understands the impact multi-tenant data centers can have on the local economy.

""The state of Maryland, and Montgomery County in particular, have become increasingly attractive options for large private and public enterprise organizations seeking to optimize costs by outsourcing IT infrastructure,"" said Steve Silverman, Montgomery County's director of business and economic development. ""The economic development grant for ByteGrid's data center customers is a clear signal of the county's commitment to create a highly pro-business region that is already home to a number of leading digital age businesses in healthcare, financial services, IT services and cybersecurity.""

Washington loses Microsoft data center business due to lack of tax incentives
Just as data center tax incentives can attract new business to an area, a lack of these breaks can also cause states to lose this industry activity. Seattle Times contributor Erik Smith noted that Washington officials recently learned this ""billion-dollar lesson"" when Microsoft elected to locate their new data center in another state.

Just weeks after lawmakers in Washington ended their session without making a final decision on tax breaks associated with data center businesses, Microsoft announced that it had plans to construct a $1.1 billion data center in West Des Moines, Iowa. Smith wrote that while Washington might have offered something similar to the $20 million tax incentives provided in Iowa, the build would have had to begin before July 1, 2015.

""That would have been cutting things close,"" Smith pointed out. ""Perhaps Iowa possesses some charms that escape those of us who live in Washington, but Microsoft is blunt. Iowa seemed interested. This state, not so much.""

Although a range of considerations are made before a company selects a location for its data center, it is clear that tax incentives can be a make-or-break aspect as part of that decision. However, Smith noted that in Microsoft's case, Iowa officials jumped at the chance to offer tax breaks, whereas Washington lawmakers seemed to drag their feet.

""Our concern is that a failure to offer tax incentives to encourage technology investments in this state is making Washington uncompetitive for future siting decisions by Microsoft and other technology-based employers,"" said DeLee Shoemaker, senior director for state government affairs at Microsoft.

The power of data center tax incentives
CBRE noted that the push to provide tax breaks for tech and data center companies doing business in a certain state is nothing new - for nearly the last decade, state government officials have worked to bolster their tax incentives associated with the IT sector. Currently, many states offer tax breaks not only on personal property taxes, but on real estate and sales or use taxes as well. In exchange for investing a certain amount in the community and creating new employment opportunities, companies can be completely exempt from these taxes.

While data center organizations may not create a considerable number of job openings, they do provide construction business. Furthermore, once an area has a small number of data centers in a certain region, other tech giants are likely to follow- as was the case with Des Moines and Colorado Springs within the past few years.

""The light is going off as policymakers realize that data centers can be a significant source of new revenue - sometimes even more so than typical economic development projects like headquarters, manufacturing or distribution centers,"" CBRE stated. ""Additionally, these assets once built are a key component to a company's overall operating environment and can create a long term investment in a community."""

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