Server farm tax exemption OK’d

OLYMPIA — Giving a boost to eastern Washington, state lawmakers on Wednesday passed a temporary sales-tax break for companies that build and operate server farms in rural areas.

The sales and use tax exemption, which would take effect in April and last until 2018, applies to server equipment, software and electric infrastructure at eligible computer data centers in rural areas.

The measure was approved on a 91-2 vote in the state House and heads to Gov. Chris Gregoire for final adoption.

Supporters said the tax exemption will help Washington compete for construction of server farms, the massive, computer-filled buildings that tech companies use to handle data storage and Internet traffic for e-mail, instant messaging and other products.

A handful of data centers already are operating in eastern Washington, which boasts cheap hydroelectric power and ample real estate. But in 2007, the state ruled that data centers were not covered by a sales tax break meant for manufacturers.

Since then, tech corporations have looked outside of the state to build the centers. Lawmakers said the bill passed Wednesday will draw new projects to Washington, adding needed construction work and property tax revenue, along with a few long-term jobs. “The revenue generated for the local governments is astounding,” said Rep. Mike Armstrong, R-Wenatchee. “There are two or three, or maybe even four of these data centers that are ready to go immediately.”

A state Revenue Department estimate said the tax break would cut potential revenue by about $28 million, based on a 525,000 square-foot data center. That would be repeated roughly every three years when the computer equipment is replaced.

But House Finance Committee Chairman Ross Hunter, D-Medina, said tax money wouldn’t necessarily be lost, since companies aren’t building new data centers under the current tax structure.

“You don’t pay if nothing happens. We have a record of two years of nothing happening,” Hunter said.

In January, the business-oriented Washington Research Council determined that four existing data centers, along with two leased in existing facilities, in eastern Washington have provided about $1.17 billion in tax revenue for Chelan, Douglas and Grant counties. Microsoft Corp., Yahoo Inc., Intuit Inc., Ask.com and Sabey Corp. run data centers in that area.

The report also said data center construction between 2004 and 2008 created more than 1,000 jobs, with new data center development expected to contribute $25.6 million each year in new earnings for the region.