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Do Tax Breaks For Data Centers Make Sense? (datacenterfrontier.com)
1sockchuck writes: Does it make sense for state to offer tax incentives to lure huge data center projects? After an extended debate, legislators in Michigan have approved tax breaks for a $5 billion data center in Grand Rapids. The project from Switch, which previously built the SuperNAP in Las Vegas, brought the debate into stark relief due to the size of the project — an estimated 2 million square feet of data center space. States competing for projects often find themselves in a bind, since the highly-automated facilities create a limited number of permanent jobs, but many states already offer juicy incentives. Michigan ultimately sought a middle path, tying the tax breaks to job creation goals. If the data center jobs don't materialize, the breaks disappear.
The state dose not lose anything by giving tax breaks. It dose not cost the tax payer anything. May cause some expenses in some ways, but once the data center is making profit they will be paying taxes for many years. Jobs or not, the state will still benefit.
I realize what the author thinks is that that a tax break means the data center is getting tax payer money, which it dose not. The same as an oil company getting a tax break dose not cost tax payers anything.
With the state tying the tax breaks to having a job goal.... why don't the data center find a better state to build?
As people and the article have pointed out, a massive data center build (often in the middle of nowhere) doesn't really benefit the local population of an area. Unless the company is moving a ton of admin jobs along with it, the tax base doesn't even increase when all these incentives are factored in. You'll have security guards, facility engineers (HVAC etc.) and a very small rack-stack-fix type of staff. Also, in the case of public cloud style data centers, everything beyond the physical hardware replacement is software-controlled once the core is built out, so you won't have as many traditional sysadmins employed. Plus, the added power and public utility costs add up as well when you consider generation costs, building or improving roads, etc.
The thing about these special tax breaks is that states have to play Prisoners' Dilemma with each other. I live in a high-tax state (NY) and we're always hearing large companies with big New York operations threatening to move to North Carolina, Florida, Texas, etc. if they don't get a special tax deal. They do this because they know they can - the low tax states will do crazy deals to get companies to move there. A company I worked for moved to Orlando, and the state and city were practically building the company a new headquarters, building new roads and easing building restrictions to suit their needs. Plus, they got some insane tax abatement for 10+ years and cheap utility rates on top of that. When companies don't have to pay normal levels of tax, the only possible upside is increased property, sales and payroll taxes from employees that move in. The high tax states have to do at least some of this also, but it's an even worse deal for them usually since they have greater expenses to cover. Florida and other low tax states spend a lot less on education, they don't have to remove snow in the winter or perform as much road maintenance, etc.
This.
Datacenters are profitable companies and are not a necessity of life for the citizens.
I see no reason why they would deserve a tax break.
The only reason they do is because they push states (or other local governments) into bidding wars.
If you could decide country-wide on which types of companies would get what type of tax incentive under what conditions, you'd save a lot of tax money.
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(I'm the OP anonymous coward).
I disagree with you. Not because you're flat out wrong - but because a system where special deals are offered individually through 'deals' with states, municipalities etc, is ripe for something rather nasty: corruption.
Furthermore, as I argued initially - you risk a race to the bottom. Something we can clearly see in the US - but we can also see this with corporate taxes in the EU. Countries 'underbidding' each other to attract investment. This is obviously not sustainable.
My county has an aggressive policy of cutting sweet tax deals to convince companies to locate here, particularly manufacturing. And honestly, it's been pretty successful in that regard. The irony is that they've had to jack up residential property tax rates to make up for it (we pay some of the highest in the state), meaning the smartest thing to do for the people that move to the area is to actually live in the next county or state (I'm right on the border) and accept the short commute to work here.