Microsoft Iowa Incentives Sent to Governor

The Iowa state Senate voted 45-2 Wednesday to approve an incentive package designed to convince Microsoft (MSFT) to locate a major data center project in Iowa. The measure cleared the Iowa House by a 99-1 vote last week, and Gov. Chet Culver is expected to sign the bill, which offers a six-year exemption of state sales and use taxes on purchases of computers, equipment and electricity for "a Web portal business with an investment of at least $200 million in Iowa." The incentives are nearly identical to a package passed last year to seal a deal for Google to build a $600 million data center in Council Bluffs, Iowa.

Microsoft said last week that it was exploring the possibility of building a data center in Iowa, but was exploring other states as well. No specific cities or sites in Iowa have been identified, but state legislators say Microsoft is believed to favor central Iowa for the project. Microsoft is in the midst of a major Microsoft's expansion of its Internet infrastructure as it battles Google (GOOG) and other major competitors in web-based services. Microsoft has developed a "heat map" of favored data center sites based on its analysis of 30 criteria. One of the most important is the cost of power and availability of renewable energy.

While Iowa legislators voted overwhelmingly in favor of the tax breaks, there are pockets of opposition. Sen. Dick Dearden of Des Moines was one of two senators to oppose the measure. "This is a company that made over $14 billion in profit last year and we're offering them welfare," Dearden said. "When are we going to stop the corporate welfare train?"

Culver has said he is aware of the negotiations with Microsoft and is willing to contact the company if it would help spur a decision.

Iowa's enthusiasm for using tax incentives to attract data centers stands in contrast to Washington State, where Microsoft and Yahoo have halted construction on their multi-facility data center campuses in Quincy, Washington while state legislators debate a tax break for data center projects.

Late last year Washington State attorney general Rob McKenna ruled that data centers were no longer covered by a state sales tax break for manufacturing enterprises, and thus must pay a 7.9 percent tax on data center construction and equipment. McKenna ruled that the data centers "do not produce a product which is sold to the companies' customers" and thus aren't manufacturers.