Facebook Faces Taxing Problem In Prineville

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The exterior of the Facebook data center in Prineville, Oregon. (Photo credit: Alan Brandt).

Does this story sound familiar? A Pacific Northwest state with affordable power and an ideal climate for free cooling attracts a cluster of data center projects. Then a large data center provider is told it may face a large, unanticipated tax bill due to an interpretation of state law. Legislators spring into action to draft bills to address the issue and maintain the state's attractiveness as a data center destination?

No, it's not Washington state, where this scenario played out in 2007-11. It's neighboring Oregon, where a dispute with the state on property taxes affecting Facebook's Prineville data center leaves the Oregon Department of Revenue searching for a fix. The Statesman Journal reports that the problem stems from how state officials originally defined Facebook as a company.  The tax issues began in August 2011 and in October tax authorities told the Bend Bulletin newspaper that Facebook faced an annual tax bill of $390,000, only to turn around the next day and say that the tax bill would be $26,000.

Facebook said it is concerned that the state is superseding the company's local tax deal. With Facebook defined as a communication company, the Department of Revenue is working on a temporary administrative rule that would exempt certain communication companies from having their value assessed by the state if they don't directly provide internet connectivity.

Seeking 'Statutory Fix'

"The data center industry represents a great deal of potential for the state of Oregon at a time when the state has a great interest in diversifying the kind of industries and the kind of jobs here," said Corey Owens, Facebook's associate manager of public policy. Owens told lawmakers last Thursday that a 'statutory fix' would provide the certainty the company needs. The Senate Finance and Revenue Committee introduced a bill that would exempt property in enterprise zones from being assessed by the state.

Facebook has a few data center neighbors in Prineville who will surely be interested in the outcome of these tax discussions. Amazon recently deployed new data center capacity in Oregon and Apple may be considering a site in the area. Last summer Facebook said it would build a second data center on its Prineville campus.

What's the lesson from Washington state? Lesson one is that these tax issues can have a significant impact on data center construction, which dried up in Quincy, Washington during the dispute. Lesson two is that the industry can mobilize to respond. In 2010 the Washington legislature passed an incentive package that resulted in a surge in building in Quincy, including expansions by Microsoft and Yahooo and new projects for Sabey Corp. and Dell.

Rich Miller contributed to this story.