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Many states and communities are using incentives to lure data centers and establish clusters of these facilities, which, in turn, stand to benefit from tax breaks and cash grants for necessary infrastructure improvements.
Data center site selection has grown in sophistication over the years as companies are in constant search of reliable, dependable, and cost-effective solutions. Whether an enterprise user or a tenant in a colocation facility, most companies choose communities based on four primary drivers:
1. Power - cost per kWh, carbon footprint, fuel mix, and infrastructure
2. Telecom - fiber providers, latency
3. Geography - proximity to headquarters or airport locations, population size, labor force, water
4. Climate - Environmental risk (i.e., hurricanes, tornadoes, earthquakes, etc.), free cooling
After solving for these primary drivers, communities will remain on the short list based on real estate availability and cost. This holds true for existing colocation facilities or greenfield sites for new construction.
When the box is checked for real estate, taxes and incentives end up swaying the business case or leveling the playing field for communities on a data center's short list. Taxes and incentives are the only tools a state or community has control over in order to win data center facilities. With this in mind, 17 states have customized incentive programs for the data center industry. Typically, the larger the project investment, the more important role incentives tend to play in the overall site evaluation.
A Quick Primer on Data Center Taxes
When developing a Total Cost of Occupancy (TCO) model, one-time and recurring taxes will have a significant impact on long-term costs for a data center. The capital-intensive nature of a data center will trigger relatively high sales taxes and property taxes. Property taxes are typically payable for both real estate and personal property (or equipment).
Sales (or use) taxes are incurred on a onetime basis for purchases of building materials, mechanical and electrical equipment, IT equipment, and, in some cases, software. Sales taxes on building materials are due based on the location of purchase, whereas sales taxes on equipment are due based on the location of delivery. For example, $10 million of IT equipment delivered to a data center in Columbus, Ohio, would incur about $700,000 in sales taxes.