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How Apple Played The Incentive Game

How did Apple get big tax breaks in North Carolina? It knew how to play the incentives game and pit rival states - in this case North Carolina and Virginia - against one another to extract the best possible economic scenario for its $! billion project.

How did Apple wind up with at least $43 million in state-level tax breaks and another $20 million in county and municipal incentives to built its new data center in Maiden, North Carolina? It knew how to play the incentives game and pit rival states against one another to extract the best possible economic scenario for its estimated $1 billion project.

When a large company looks for a site for a major data center, it's almost always a multi-state process. Issues like power costs, the suitability of a site for using free cooling and the availability of recycled water have been major site location factors in recent data center decisions.

But nowadays, the decision often boils down to tax incentives. Want to see a local politician spring into action? Tell them that the billion-dollar project that was about to make them a local hero will instead be headed to the state next door. Unless, of course, the official can arrange for a favorable tax situation that can tip the balance in their favor.

This process goes on all the time, yet we rarely see it in action. But the exception is the state of North Carolina's courtship of Apple. The state recently released e-mails revealing how the state responded to a competitive threat for neighboring Virginia with a speedy tax break that won the Apple deal.

Here's a summary of the sequence of events, as outlined by the Charlotte Observer:

“The company informed Peggy [Anderson] and me they are stepping things up with the State of Virginia and will revisit there on Monday and Tuesday,” Dale Carroll, chief operating officer at Commerce, wrote in a March 28 e-mail to nine others at Commerce, the Department of Revenue and Gov. Beverly Perdue's office. Two days later, an Apple representative sent Commerce Secretary Keith Crisco an e-mail with suggested legislative language to change the corporate tax formula. For much of April, talks took place between Commerce, the governor's office and legislators on the details of a measure. In May, the bill was introduced in the Senate Finance Committee, and less than a month later it was signed into law by Perdue.

By late March it was well known that Virginia legislators were preparing their own package of incentives for data center operators. Virginia officials insist their incentive program is a way to enhance its attractiveness for data centers - which are already a major industry in northern Virginia - ratehr than a response to any specific requirement.

While not playing favorites among regions within Virginia, the state is touting the availability of sites in southern Virginia, where there is less competition for power. An example is GigaPark, which is organized by the Mid-Atlantic Broadband Collective.

For projects in southern Virginia, the competition is North Carolina. And on the Apple data center, the company's threat to shift its focus to Virginia encouraged North Carolina legislators to rapidly provide the company with the incentives it desired.

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