Washington Tax Break Proposal Nears Decision

The push to restore a key tax break for data center projects in some areas of eastern Washington state is coming down to the wire, and the measure is encountering some challenges as it nears the finish line.

The push to restore a key tax break for data center projects in some areas of eastern Washington state is coming down to the wire, and the measure is encountering some challenges as it nears the finish line. The sales tax exemption for data centers is included in a house revenue bill being debated in Olympia, and has gained support from key lawmakers and editorial boards.

But the nature of the tax break, which only includes rural counties, has raised late objections from data center projects in other parts of Washington State. Seattle developer Benaroya Companies is building a $100 million data center project in Puyallup in Pierce County, which isn't included in the legislation in its current form.

Benaroya said the company will have to rethink its plans if state government passes a tax break to data centers in another part of the state, saying it would hurt Benaroya’s efforts to compete for tenants. “I really only want a level playing field,” Benaroya's Marc Nemirow told local media. “If we have to pay the sales tax, we don’t think it’s fair that someone else doesn’t.”

The tax break would allow a 15-month sales tax exemption on the purchase and installation of computers and energy for new data centers in 32 rural counties. Seven counties are not covered by the proposal.

The tax controversy in Washington State erupted in December 2007 when attorney general Rob McKenna ruled that data centers were no longer covered by a state sales tax break for manufacturing enterprises because they “do not produce a product which is sold to the companies’ customers.”

The repeal of the tax benefits has slowed data center development in the state, which had seen a boom in mission-critical projects in Quincy and Wenatchee in 2006 and 2007. Microsoft cited the tax issue in its decision to migrate its Windows Azure cloud computing service out of Washington state. Meanwhile, rival Oregon is attracting major new projects, including a $188 million Facebook data center in Prineville.

The reinstatement of the tax break has been backed by the Washington Needs Jobs coalition, which includes Microsoft, Yahoo, VMware, Sabey Corp. and Base Partners – which all have data center projects in the state – along with the Washington Technology Industry Association and the town of Quincy, Wash.

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