Eight major technology and telecommunications firms are seeking millions of dollars in state sales tax cuts on computers and equipment that will be going into major Internet facilities in Northern Virginia.
The companies--Intel, MCI WorldCom, AT&T, Global Crossing, PSINet, Cable & Wireless, Equinix and UUNet--have made a pointed appeal to the Virginia General Assembly in Richmond: You did it for America Online, now do it for us.
Early this year, AOL won an $18 million tax break on computer equipment from Richmond, and might reap an additional $4 million in annual tax savings.
The eight companies are often competitors around the world. But they have formed a coalition to seek sales tax exemptions on equipment for facilities they are building or expanding that are used to host a proliferating number of clients' World Wide Web sites or route Web traffic around the Internet.
Several key state officials say they are sympathetic to the request. But its fate is uncertain in the legislative session that convenes Jan. 12 because, at this point, no one knows how much the sales tax exemption would cost.
The firms are planning to spend $500 million building data centers in Northern Virginia next year, according to one coalition leader. A large but unspecified portion of that cost would go for equipment purchases, and it is that share on which the firms hope to avoid paying the state's 4.5 percent sales tax.
"We're constantly looking to see what we can do to promote technology in Virginia," said state tax commissioner Danny M. Payne, who has met with representatives of the firms. "Clearly, we're No. 1 in wanting technology firms to locate in Virginia."
Gov. James S. Gilmore III (R) has been a vocal proponent of boosting the fortunes of technology firms in Virginia, and last Friday, as part of his biennial state budget request, he called for a state study to be completed by next October on the taxation of tangible property purchased by Internet service providers.
Del. John H. "Jack" Rust Jr. (R-Fairfax), who sponsored the AOL measure, said he was "philosophically in favor of expanding" the sales tax exemption, "but we're struggling to figure out what the scope will be."
AOL's tax break covers computer equipment it is buying for a data center under construction in Prince William County. The AOL deal was the result of legislation that was written in such a way as to benefit only the Dulles-based Internet giant. State lawmakers passed the measure early this year in an effort to get the company to build the facility in Prince William rather than in North Carolina.
The legislation--which never mentioned AOL by name--waived the 4.5 percent sales tax on certain computer servers and other equipment bought by any Internet service provider that offered proprietary content to "end users"--AOL's customers, in this case.
It was a description that apparently fit AOL alone, not the other companies that are building extraordinarily secure, warehouse-like data and Web-hosting centers throughout western Fairfax and eastern Loudoun counties. The fortresses have miles of fiber-optic cables strung through them and are protected by bulletproof walls.
The centers are one of the key linchpins of the Internet age, the storage place for Web sites and transmission points along Internet networks. As recently as 1995, the Web-hosting industry did not exist. But now several firms have figured out that much of corporate America does not have the technical expertise, the money or the desire to house and operate Web sites by themselves around the clock.
The Web-hosters need new legislation to get the tax break because they are intermediaries in the process, not creators of data for "end users," as stipulated by the AOL tax break.
Michael D. Freedman, director of state and government relations for Global Crossing, which has one data center in Fairfax and is building another, contends that in a fashion, the tax break would come "at no cost to government revenue. This industry heretofore did not exist, so, therefore, government didn't anticipate tax revenue from this industry. They're not giving up anything."
But he also said he realizes that such an argument alone is not likely to carry the day for the eight technology firms.
He said the state government has to realize that "you can provide Internet services from anywhere to everywhere. The cost of doing business . . . is a very important consideration. Reducing our costs encourages us to locate in Virginia."
Intel is already building a data center in western Fairfax with $10 million to $15 million in computer equipment. But company spokesman Chuck Mulloy said that any Virginia sales tax exemption would be beneficial in the future because "the shelf life of the computers that host the data is two to four years and they need to be traded or upgraded.
"Obviously, we located there without the tax break," he said. "Is it a critical factor? No. Do we view it as important? Yes."
CAPTION: Virginia Gov. James S. Gilmore III has sought to boost technology firms.