Washington State Extends Data Center Tax Breaks

Washington State wants to promote development and construction of data centers in rural areas and has extended tax incentives to that end. The total value of data center investment in rural Washington (i.e. Quincy, Wenatchee, Moses Lake) since 2006 has topped nearly $4 billion, according to the Port of Quincy.

The bill was passed by a wide margin by the state legislature and signed into law by Governor Jay Inslee last week. The tax incentive extension is a big deal, considering what happened last year with a Microsoft project when the state legislature adjourned without extending the high-tech tax breaks.

In a letter to the state legislature, the Port of Quincy issued a statement ahead of the recent extension: "Frankly, if the rural tax incentive for the development and construction of data centers were continued, it is highly likely that at least two or three major data center projects, valued at several hundred million dollars, would begin construction in Quincy, Washington, or Grant County next year."

The existing data center sales and use tax exemptions were set to expire on July 1, 2015. For data centers built by that cut-off date, the breaks have been extended until 2024. For construction after that tax, the tax breaks have been extended for up to 12 data centers with a few changes. The tax breaks cover sales and use tax exemption for server equipment and power infrastructure.

Perhaps the most famous example of the effect of data centers on rural areas in Washington is Microsoft’s Quincy campus. That town’s motto is even “where agriculture meets technology.” Quincy’s tax revenue boomed, tripling from 2005 to 2007 as the likes of Microsoft and Yahoo established their initial data centers.

Microsoft’s campus has grown since, though it has halted expansion several times citing tax-break uncertainty. Expansions were halted in 2008 and again last year, Microsoft allegedly picking Iowa ahead of Washington State last year. Microsoft’s state government affairs director DeLee Shoemaker stated both times that Iowa went after the business harder.

In related news, Iowa continues to be aggressive, recently approving tax breaks for a Google expansion.

Last year, Microsoft announced a $1.1 billion project in Iowa, leaving a controversy in Washington over whether or not the state had lost out on the project due to tax incentives. An editorial in the Seattle times called it “a billion-dollar lesson to the State of Washington”.

The state legislature adjourned last year without extending high-tech tax breaks set to expire, and six weeks later came the Iowa news. Shoemaker went on record saying that Iowa went after the business harder and noted once again that failure to offer tax incentives made Washington look less competitive for future decisions.

In December of 2013, Microsoft was looking to expand in Quincy, stating intentions to acquire 200 acres of land. Iowa offered a $20 million break on sales tax, and Washington was competitive, but only if construction commenced before July 2015, when the tax breaks were set to expire.

Neighboring state Oregon has been aggressive with data center tax incentives and has won a lot of data center projects as a result.

However, Oregon faced a stutter over a controversial central assessment tax that took company value into account. Central assessment was killed in short order when Oregon Governor Kate Brown signed off on a bill mere months after the issue was unearthed in the media. Central Assessment was reported to be diverting data center construction, including an Apple project. Apple resumed construction for a new campus after central assessment was fixed.

States are getting aggressive with data center tax incentives because data centers provide a notable economic boost. While a data center is not always massive job creator, it does bring high-quality jobs, boosts the local tech scene and spurs local business activity. Facebook has performed a few different economic impact assessments in North Carolina, Oregon, and in Sweden.

An example of boosting local business provided by Port of Quincy is Chinasoft, which recently located in Quincy to do software programming relating to data centers.

There’s a reason that major cities are often located near water and have major ports: it spurred commerce during their formation. Data centers are this century’s transportation infrastructure behind an increasingly digital economy.

The Port of Quincy had a great deal of success in recruiting high-tech data centers, it said. Microsoft, Yahoo, Intuit, Dell, Vantage, and Sabey located in Quincy because of competitive electrical power rates and state-of-the-art fiber optics connections there.