Washington Data Center Tax Break Passes

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planned to build two more huge data centers on its property in Quincy, but those plans were shelved when the tax break was revoked.

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About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.

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  1. The incentive lasts for 15 months, so it covers the initial installation of equipment subjected to the sales tax - a significant dollar amount. A few end-users with lobbying power and a few municipalities within certain counties may get a few "on hold" data center projects moving forward - so there is benefit to a "few," but it will be interesting to see if other end-users scramble to take advantage of this legislation. The projects that this legislation targets are dead set on west coast presence anyway, so this legislation may shift focus of late from Oregon to WA state, for 15 months... It probably has little, if any, impact on projects shifting from anywhere else in the country to WA. 15 months is a tight window to make decisions unless those decisions (sites, plans, designs, approvals, power to sites, water rights) were already "mostly" completely made. Beyond the 15-month window, the end-users are still faced with high taxes on server refreshes, a big number for large data center operators refreshing servers every 3 - 4 years for the next 20+ years. It's a great first step, but it would be better if the sales tax relief timeframe were longer, obviously. For a project to be successful under the current conditions, the end-user must engage a high-performance team who has built in the area before - T5 Partners has done so.

  2. In a time where our state is scrambling to fill a budget shortfall with lots of new taxes and stuff I find it pretty stupid to add a new tax break for any specific industry. http://article.wn.com/view/2010/03/09/1_billion_in_new_taxes_will_cost_Washington_state_residents_/ "WITH Washington state lawmakers poised to adopt nearly $1 billion in new taxes on families and businesses[..]" But I guess the lobbyists won out on this one too.

  3. Brad Habenicht

    March 26, 2010 Before you comment on the passing of the bill into law, maybe you should actually read it first! The "15 month window" only impacts the Building Permit submittal. The actual tax break runs until 2018, which will cover approximately 2 equipment replacement cycles. In addition, if you take the time to research the true economic and tax revenue generation impacts of new data centers, you will see over $ 1Billlion has already been generated by the data centers in Wenatchee and Quincy since 2006. This information was provided by the State of Washington and confirmed by several sources. Take the time to do the research, you will be amazed at what you learn!

  4. Brad: Thanks for the additional information. This kind of insight from readers is always welcomed. Snark is entirely optional.