Washington Data Center Tax Break Passes

A package of tax incentives for data centers has easily passed the Washington state legislature, and now heads to the desk of Gov. Chris Gregoire, who is expected to sign the measure.

A package of tax incentives for data centers has easily passed the Washington legislature, and now heads to the desk of Gov. Chris Gregoire, who is expected to sign the measure.

The tightly targeted 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. The measure passed the state Senate by a 39-4 vote on Tuesday, and cleared the House by a 91-2 vote last night.

The signing of the bill is likely to prompt a burst of activity in Quincy, where a number of data center builders have been awaiting the reinstatement of the tax incentive. These data center projects now have a 15-month window in which they can save money on equipment purchases.

The legislative initiative was backed by the Washington Needs Jobs coalition, which includes Microsoft, Yahoo, VMware, Sabey Corp. and Base Partners, along with the Washington Technology Industry Association and the town of Quincy.

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 most intriguing question raised by the reinstatement of the tax breaks is whether Microsoft will build an additional facility in Quincy, where the company operates a 470,000 square foot data center. Microsoft initially planned to build two more huge data centers on its property in Quincy, but those plans were shelved when the tax break was revoked.

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