As the world focuses on Rio, and Las Vegas tries to lure an NFL franchise, we hear contrasting opinions about the local economic impact of events like the Olympics and professional sports teams. Construction jobs are great – but often go to out-of-town specialty contractors. Stadium jobs are seasonal, and often low-wage. Often cited is the impact to local businesses, who benefit from increased traffic on game days, or even contracts with the team or organization. Reviewing the arguments from both sides, when it comes down to it one thing is clear – no one has been able to quantify the long term impact. Despite this lack of clarity, politicians and economic development groups clamor to land these high-profile teams and events through tax breaks and subsidies for construction. Sound familiar?
With New Mexico and Utah reportedly fighting for the opportunity to build a new 550,000 SF data center (Data Center Dynamics suggests Facebook is the force behind shell company Greater Kuda LLC) we see the same type of divide. Detractors point out that a half million square foot facility like the one being proposed by Greater Kuda LLC would require a tremendous amount of water (over 5 million gallons daily), while only providing 70 – 90 jobs. Proponents point out that as internet and online networking becomes the center of all major businesses and cloud computing rises through the ranks, having become the prioritized choice for new and upcoming as well as small and well established businesses alike, data centers have undoubtedly become one of the most in-demand resources. Because of the central role they play in our contemporary business world, data centers have become invaluable revenue generators and, hence, contribute to a prosperous economy in the location they are placed. There is a further argument to be made that the prestige that comes from a best-in-class firm choosing to locate in a community attracts other, sought-after, companies.
This is why several states in the US look to attract potential data centers with offers and policies that favor them and convince them to choose that particular state as the ideal location for the placement of their cluster of data centers. One of the strategies deployed by state governments is tax incentives. Tax incentives are a percent of exemptions from property or equipment tax. According to an analysis, around 23 states in the US provide a degree of such incentives to attract potential customers.
Here are some states and their tax incentive policies, along with the results they have received.
In accordance with a data center incentive that was created and implemented in 2012 in the state of Alabama, data centers could be provided with a hundred percent exemption from any and all equipment tax they may have to pay for their bought infrastructure. This law not only allowed $200 million of capital investment to be made, but also paved way for at least 20 new jobs in the area. This incentive convinced Google to invest in the state $600 million worth of facility in exchange of which it receives more than $81 million of local and state incentives.
Arizona began to run the race of data center competition in 2013, where under the newly passed law, any business investing a minimum of $50 million may be provided with up to a hundred percent of sales and property tax incentives. This is why a collection of more than ten high-profile companies, including eBay and GoDaddy, are hosted in the state of Arizona, where they receive more than $5.5 million in tax breaks over a period of 10 to 20 years.
Atlanta has been deemed one of the leading markets or destinations for data centers due to a luring tax incentive policy. Passed in 2005, its incentive program has been a long running and attractive one, requiring only $15 million worth of investments be made annually. In return, the businesses would be exempted for all of the sales tax or computer equipment tax they were to pay. This is the primary reason why the state has been able to grab some big fish in the industry (although the names have not been disclosed).
Nebraska’s incentive program offers larger data center tiers, which require at least $200 million to be invested as capital and a minimum of 30 new jobs to be created. This was called the Nebraska Advantage program and as a result of this investment, companies were provided with a full refund of any sales, income, or real estate taxes paid. This large tier policy has, as a result, made Nebraska’s clients larger and more well established companies, such as Yahoo, who remains one of the prime guests of the state.
The state of Texas deployed a new incentive program in the year 2013, under which a company investing a minimum of $200 million in capital and providing 20 jobs would receive a full exemption from all sales taxes: on equipment, infrastructure, cooling systems, fuel, electricity and software amongst others. Although they did introduce another limit; the exemption only applied to those data centers that comprised of more than 100,000 square feet of space.
POWER PURCHASE AGREEMENT
On the other hand, if a business or data center owner has not been tax-exempt and has partaken in a Power Purchase Agreement, which is a financial agreement where a seller arranges for and provides power or electricity services to a data center’s property, then they can make use of federal tax incentives such as Investment Tax Credit, that offers tax paying premises a 30% credit on the total cost of their power system, or Accelerated Depreciation, where Internal Rescue Service offers a cost recovery system for commercial power equipment. Thus, these attractive policies may play a huge part in helping big names such as Apple and Microsoft to invest in a particular state.
Jeffrey Dorf is the Editor of The Data Center Blog and President of the Global Data Center Alliance