Washington State Passes Data Center Tax Breaks

Sabey-Quincy-470

Sabey Data Centers' Intergate.Quincy, pictured above, was one of the projects that moved forward after Washington state legislators passed tax incentives in 2010. The state appears poised to restore those tax breaks, which expired last July. (Photo: Sabey Corp.)

Washington state is poised to restore data center tax incentives that sparked a building boom in the state in 2010, and could help the state compete more effectively with Oregon for future projects.

Last week the Washington state legislature passed sales and use tax exemptions for data centers built in rural counties, and Gov. Chris Gregoire is expected to sign the bill into law. Once it is signed, the bill will restore tax incentives that jump-started data center construction in Quincy, a small town in Grant County that is home to a cluster of major data centers for companies like Microsoft and Yahoo.

Since the tax break expired in mid-2011, the data center development focus in the Pacific Northwest has shifted to Oregon, which has won new projects from Apple, Fortune Data Centers, NetApp and Adobe.

Senate Bill 6635 passed the Senate on a 35-10 vote and passed the House 74-24 Friday morning. "The legislature finds that offering an exemption for server and related electrical equipment and installation will act as a stimulus to incent immediate investment," the bill reads. "This investment will bring jobs, tax revenues, and economic growth to some of our state's rural areas."

Some Breaks Extend Through 2020

The bill exempts data center operators and their tenants from sales taxes on the purchase and installation of servers and related electrical equipment, including generators, UPS systems and switches anytime between now and July 1, 2015. The exemption also applies to replacement server equipment installed before April 1, 2020 - which could allow eligible companies to no sale staxes on several generations of hardware replacements. Data center operators typically refresh servers every three to five years, but that cycle is often shorter for hyperscale environments operated by many tenants in Quincy.

Companies receiving the tax exemption must create 35 new jobs within six years. To qaualify, a data center campus must be at least 100,000 square feet, with at least 20,000 square feet of space dedicated to housing servers.

The targeted tax incentives were first passed in March 2010 to allow a temporary exemption on the 7.9 percent tax on computers and energy for new data centers in 32 rural counties. To qualify for the incentives, companies had to commence construction by July 1, 2011.

Incentives Prompted Major Construction

Microsoft and Yahoo took advantage of the temporary incentive, building new phases on their respective facilities in the data center hub of Quincy, Washington. The projects each featured cutting-edge designs – featuring Microsoft’s modular approach and Yahoo’s “Computing Coop” – that make Quincy home to two of the world’s most efficient data centers. Sabey Corp. and Dell also began construction on new projects in Quincy, ensuring that they will qualify for the tax incentive.

But efforts to extend the incentives fell short, and they expired last July. Since then, data center site selection efforts have shifted south to Oregon, which has no sales tax.

The Pacific Northwest is a prime destination for companies seeking the lowest operating costs for their data centers. The region’s abundant supply of affordable hydro power is a major factor in its appeal, along with a cool climate that supports the use of fresh air in cooling servers inside the data center.