Last week we took note of a state Commerce Department report on Washington’s lagging competitiveness for data centers. Today, we want to cite a Wenatchee World op-ed (behind a pay wall) by Matthew Hepner, executive director of the Certified Electrical Workers of Washington, and Robin Toth, vice president of Greater Spokane Incorporated. They identify the economic importance of data centers to our state, writing,
Legislation proposed in Olympia will extend Washington’s existing data center investment incentives statewide. Expansion will make Washington’s metro areas more attractive for data center location, but everyone, regardless of where you live, should support passage.
Data centers touch virtually every aspect of our lives, including education, healthcare, financial services, e-commerce, manufacturing, communications, and entertainment. They are the foundation of the digital economy, increasing productivity and enabling business and personal transactions. With increasing reliance on cloud computing, artificial intelligence and Internet of Things, their importance continues to grow.
Currently, as the Commerce Department study found,
Washington is almost the only state that limits its sales and use tax exemptions to specific rural counties. The data center market has changed dramatically since the state of Washington formulated its thinking. The projects are larger, the stakes are bigger, and there are three times as many states competing for these deals…
Urban Washington counties that do not have access to sales and use tax exemptions for data centers will continue to be at a competitive disadvantage to other urban data center markets, such as Portland that either do not have sales tax or that offer tax incentives that abate the sales tax.
Hepner and Toth write,
Construction of data centers in rural communities has ebbed and flowed in direct relation to the state incentives provided. With incentives in place, rural Washington locations have been competitive. When they were temporarily rescinded, construction migrated to Oregon and elsewhere…
While the incentives kept rural Washington sites competitive, the challenge grows in urban locations.
Beyond power costs, the next key cost component and the largest differential is taxes. Washington’s metro areas aren’t competitive on that front, because sales taxes add approximately 10 percent to the total equipment cost per refresh cycle.
In contrast, Oregon has no sales tax. Additionally, the Portland suburb of Hillsboro has invested heavily in communications infrastructure and created an “enterprise zone” offering other incentives to encourage data center investment. Since 2011, it’s estimated that over $1.9 billion has been invested in data centers there, while the Puget Sound region, with a larger population, economy and tech sector, has seen roughly one-tenth that amount. Many of the largest US data center operators, foreign ITcompanies, and end users have already located in Hillsboro.
Extending existing incentives statewide — as House Bill 2673 and Senate Bill 6307 would do — will help stem this tide by making Washington more attractive to the widest range of data center owners, operators and end-users.
The Associated Press reports that Virginia has been aggressively pursuing the business with tax incentives.
Tax breaks to attract some of the world’s richest companies to Virginia have exploded as the state has become a top global market for data centers.
The Commerce Department report pointed out that Virginia’s promotional material specifically cites Washington’s on-again, off-again history with data center incentives. The report comments,
As Virginia points out, the market abhors uncertainty, and predictable competitive tax incentives are a critical component of the competition between states for data centers.