Data center companies seek tax incentives

June 23, 2013

When Sacramento-based data center company RagingWire was considering where to open its newest facility, Loudoun County was high on the list. After all, the county was already home to dozens of data centers, a prime marketplace, said Mark Morrow, chief financial officer at RagingWire.

The area also offered something else: A tax break.

After pumping about $42 million into a 150,000-square-foot facility in the area, which it opened last year, RagingWire now has entered into an agreement with Virginia to increase its total investment to $150 million and created 50 new jobs over the next five years.

In return, RagingWire, as well as its customers, will be eligible for an exemption from state sales tax on purchases of computer equipment and other infrastructure.

The deal is part of a larger trend taking place as jurisdictions try to win over data centers. States from Minnesota to Texas have added incentives in recent years, meant to help them attract the coveted facilities, which generally increase tax revenue but don’t bring significant traffic or pollution.

John Lenio, managing director of CBRE’s Economic Incentives Group, counts 15 states that now have data center-specific tax incentives — virtually all of which have been put in place since 2008.

“States are seeing $500 million, $1 billion data centers, and they want to have a piece of that action,” Lenio said. “Without incentives, they weren’t landing on the short list.”

The arrival of a data center in a particular area can demonstrate a town’s ability to adapt, said Rob McClintock, vice president of research at the Virginia Economic Development Partnership.

“It helps with branding and then the attraction of other [companies],” he said.

Morrow said the incentive was attractive to RagingWire, but also a key consideration in drawing customers, who buy the computer equipment they operate within RagingWire’s facility.

To keep pace with the growing pressure, Virginia last year expanded its incentive program to allow data centers with multiple tenants to aggregate their investment and job creation numbers to qualify for a sales and use tax exemption on equipment.

“Competition is definitely growing in the data center landscape,” said Josh Levi, vice president for policy at the Northern Virginia Technology Council.

In Minnesota, for instance, the legislature recently lowered the threshold required for new data centers to get a tax exemption.

As chief executive of Reston-based data center company ByteGrid, Kenneth Parent has been seeking data centers to acquire. The company most recently picked up a facility in Cleveland.

If counties or cities have these programs, “that puts them in the advantageous column for us,” he said. “Constantly, it seems like, you’re seeing new tax incentives being offered in new areas. More folks are jumping on the bandwagon.”

Lenio said data center operators are increasingly looking to tax cuts that can help them run profitable businesses.

“Incentives are really much more top of mind now than they might have been 10 years ago,” he said.

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