Virginia Passes Data Center Tax Incentives

The state of Virginia has adopted targeted tax incentives to attract major data center projects to the state, which is already one of the most active data center markets. The incentives are designed to keep Virginia competitive with other states that have passed similar tax incentives to attract data center projects, and positions the commonwealth to benefit from IT investment in the Obama administration's economic stimulus plan.

Last month both houses of the Virginia General Assembly unanimously passed the incentive package, which offers tax breaks on servers and other equipment purchases for either new or existing data centers. The bill was promptly signed into law by Gov. Tim Kaine.

The new measure offers an exemption from the Virginia Retail Sales and Use tax for computer equipment bought or leased between July 1, 2010 and June 30, 2020 for use in a data center. The facility must be located in Virginia, generate capital investment of at least $150 million and create at least 50 new jobs that pay one and one half times the prevailing average wage in the locality.

Interested companies will need to sign a memorandum of understanding with the Virginia Economic Development Partnership (VEDP) detailing the spending and jobs associated with the project.

"This action by the Governor and Virginia General Assembly will be a valuable tool in recruiting and retaining existing data centers," said Liz Povar, Business Development Director, VEDP.

The Virginia legislation was not targeted at a particular company or project, according to Michael MacNeilly, the VEDP's liaison to the data center industry. "We recognized that we weren't as competitive as we wanted to be," said MacNeilly, who noted that the state has benefited from competitive power prices, strong fiber connectivity and a concentration of networks and providers in northern Virginia.

In 2003 Virginia created the Mid-Atlantic Broadband Cooperative (MBC), a not-for-profit cooperative designed to make affordable broadband available throughout the state. That has expanded the range of sites available for data center projects beyond Loudoun and Prince William counties, the traditional data center hubs in northern Virginia.  

"A lot of people want to be in northern Virginia, and we continue to find places for them," said MacNeilly. "There are other parts of the state that are just as competitive. We have 130 sites available, including existing buildings and greenfield sites that are shovel-ready."

MacNeilly said the tax incentives are available to existing Virginia data centers whose expansions involve more than $150 million in equipmetn and will create 50 jobs that meet the salary criteria. The job count can include include company employees as well as contractors with full-time employees that work on site, such as security staff and third-party staffing firms. Construction jobs are not eligible.