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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.
It's rather obvious - the tax code should be simple. Without tax breaks for special interest groups.
The hodgepodge of tax breaks for this and that makes the tax code unfair, complicated, and leads to a race to the bottom between states, attempting to claw in industry by offering them the best deal.
American states should unify in some sort of federation, with a common, unified and simplified tax code - which should get rid of every single tax break on offer.
The tax breaks make sense for each individual state. Just like when you are arrested, and offered a plea deal to rat on your partners, it makes sense to do so: This is the Prisoner's Dilemma. It would be best if the states would all agree to mutually stop the tax breaks, but in the absence of such an agreement, it makes sense for an individual state to defect, and offer a break.
It is unfortunate that the courts don't ban these special tax breaks under the constitution's equal protection clause. No company should get a "special deal" that is not available to any other company. They should all be treated equally.
Tax breaks by local or state governments to win construction projects NEVER make sense, and should be outlawed as a form of unfair treatment under the law.
Small businesses hire FAR more employees and put FAR more back into the local economy than large companies who have the political clout to win abatements. Every tax abatement won by a company deciding to do business somewhere is an effective tax INCREASE on every other business and resident of that jurisdiction.
When a company moves into town, they are taking advantage of the roads, sewers, fire and police protection, schools, and other appurtenance of civilization, and they should pay their fair share for that infrastructure.
Speaking specifically about data centers -- they hire relatively few people, take up a large land mass, add stress to the local electrical grid, create buildings that drive down surrounding land values (who wants to live next to a windowless building with huge air conditioners?), etc. etc.
I'm not saying they are "bad" neighbors, but they certainly don't deserve a ticker tape parade, and they should pay their fair taxes like anyone else.
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.