Virginia Finds Data Center Tax Breaks a Good Deal: Report

State and local governments doling out tax breaks to companies building and leasing data centers are a widespread practice, albeit a controversial one, since a new data center doesn’t create nearly as many new jobs as, say, a factory. But the State of Virginia, home to the world’s largest concentration of data centers, has year after year found that its data center tax breaks are a good deal for tax payers.

The state abated $92.2 million in retail sales and use taxes in 2019 on computing gear housed in data centers, Washington Business Journal reported, citing Virginia’s recent Comprehensive Annual Financial Report. That’s just over 16 percent more than it abated in fiscal 2018.

But there’s a hefty return on that investment. Alone, Loudoun County (the county where the massive data center cluster is located) expects to rake in “about $320 million in direct tax revenue from the data center industry in fiscal year 2020,” according to the WBJ report.

Data centers’ economic impact has allowed the county “to cut its real property tax rate by more than 25 cents per $100 of assessed value since 2010.” During that same period, property tax collections in the county rose by more than $600 million.

During that period, Loudoun saw a data center construction boom of unprecedented proportions. Drawn by the high density of network infrastructure they can interconnect with in the area, data center developers and hyperscale cloud platforms spent tens of billions of dollars on building server farms there.

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While hyperscalers didn’t lease as much data center space in Northern Virginia in 2019 as they did in prior years, data center construction in the market went on, with developers expecting to see demand growth pick up again. In the first half of last year, sixty percent of all ongoing wholesale data center construction in the US was taking place in Northern Virginia, according to CBRE.