Data center prospects demonstrate importance of tax incentives

Reporting in the Puget Sound Business Journal, Emily Parkhurst makes the point:

Want a giant data center in your city? It takes more than cheap power. It takes tax incentives.

We examined the issue in our report last fall.

Data center growth in Central Washington accelerated after passage of a state sales tax exemption in 2010. That incentive was allowed to expire in 2011, shifting data center construction to other states that have competitively priced land and power. The tax exemption was restored in 2012, temporarily returning Washington’s competitiveness for data center location. The incentive was not extended in 2014 and is scheduled to expire in 2015.

As Parkhurst reports, while the incentive was not in effect, Central Washington lost a key data center to Iowa.

Now, though, Washington’s tax incentives have been reinstated and Quincy reportedly expects two or three new data centers to begin building there next year. Each facility is valued at several million dollars.

The link in Parkhurst’s story is to a post in Data Center Knowledge that notes this statement from the Port of Quincy.

In a letter to the state legislature, the Port of Quincy issued a statement ahead of the recent extension: “Frankly, if the rural tax incentive for the development and construction of data centers were continued, it is highly likely that at least two or three major data center projects, valued at several hundred million dollars, would begin construction in Quincy, Washington, or Grant County next year.”

Two years ago, the Washington Research Council reported on the positive economic impacts of data centers.

The arrival of the data center industry has benefitted Central Washington in several ways. In addition to providing family wage jobs over the long term, the centers have provided welcome improvements in the fiscal situation for local governments. In the short term, sales tax revenue from construction has provided millions of dollars for one-time expenditures on infrastructure and public facilities. Then, once the centers are in operation, property and sales taxes generated by the centers themselves, as well as the data center employees’ sales and residential property taxes, provide a long term increase in revenues.

These increased revenues are evident not only in smaller cities like Quincy, but countywide in Grant and Douglas Counties.

Data centers also give communities in Central Washington a toehold in the larger quest for technology-based economic development. 

Positive gains in tax revenues, great jobs, and a foundation for future growth. Something to think about next time someone criticizes costly “tax loopholes.” Congratulations to the Legislature for restoring the incentives.