New Bill Would Extend Washington State Tax Cuts

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A view of several IT-PAC server modules being installed at the new Microsoft data center in Quincy, Washington.

Buoyed by a surge in data center construction, backers of tax breaks for data center projects in central Washington are now pushing to extend those incentives through 2023. A bill to extend last year's tax exemption for data center construction to 2023 was introduced in the both houses of the legislature last week, and was discussed in a preliminary hearing by the Senate Ways and Means Committee in Olympia.

In March 2010 the Washington legislature passed a targeted tax break to allow a temporary sales tax exemption on the purchase and installation of computers and energy for new data centers in 32 rural counties. To qualify for the incentives, companies must commence construction by July 1, 2011. The measure’s backers are hoping for an extension, citing the level of development activity since the passage of the incentives. Microsoft, Yahoo, and Sabey have all announced new phases of data center construction, while Dell has outlined plans for a large facility in Quincy.

Area a Magnet for Data Centers

Quincy has become a magnet for data centers because of its abundant supply of cheap, “green” hydro power generated by area dams, with some companies paying just 2 cents per kilowatt hour for its power in Quincy. Because of the volume of electricity used by major data centers, the price of power has an outsized role in the site selection process for these facilities. Quincy is also ideal for free cooling, in which companies use cool air from outside the building to cool the servers, rather than air conditioners.

That combination has made Quincy home to two of the most advanced and energy efficient data centers in the world, with Microsoft and Yahoo deploying new cutting-edge designs that use prefabricated construction and free cooling.

The tax issue dates back to 2007, when the state of Washington said Yahoo was not eligible for  a state sales tax break for manufacturing enterprises in rural counties, and thus must pay a 7.9 percent tax on data center construction and equipment.  The state ruled that data centers did not qualify for the breaks, which are targeted for manufacturing facilities.

Economic Benefits Cited

Terry Tillton, of the Washington State Building and Construction Trades Council, told the Senate committee that the new projects generated more than 200,000 worker hours for construction workers.

"Construction workers are now working in central Washington," added John Sabey, President of Sabey Data Centers. "Construction unemployment in central Washington today is virtually zero."

Local officials estimate that Grant and Douglas counties have collected $56.4 million in additional sales tax revenue from data center projects between 2006 and 2008. Grant County’s average wage increased 19 percent between 2006 and 2008, while property tax values in the city of Quincy increased by $504 million during that period, according to the Port of Quincy.