An illustration shows a server room interior in a data center (Thinkstock.com)

An illustration shows a server room interior in a data center (Thinkstock.com)

Editorial: Tax break could bring more data centers to state

Currently, the state is losing potential IT construction and maintenance jobs to Oregon.

By The Herald Editorial Board

If you’ve wondered where your Facebook feed, your Spotify request to Alexa and your last Amazon order are kept, it and the rest of the internet reside in data centers — also known as server farms — vast warehouses with rows of computer servers that handle the ones and zeroes of our online lives and commerce.

And with the growth in mobile devices, the Internet of Things and other services of cloud computing, the demand for data centers has grown throughout the nation.

For more than a decade, Washington state’s rural counties, and in particular Grant County in central Washington, have been able to to attract construction and maintenance of a fair number of data centers because of the state’s relatively inexpensive electrical power and land costs and also because of a tax incentive adopted by the state that has helped attract centers that otherwise might have gone to other states.

As recently as 2011, Washington state was considered the data center hub of the Pacific Northwest, benefiting from that inexpensive electricity but also its proximity to Amazon, Microsoft and other leaders in information technology. But data center construction has slowed in the state’s rural areas and lags even more in the state’s suburban areas closest to the online giants.

Right now, many of those data centers that might have been built here are going to Hillsboro, Oregon, west of Portland, which can match Washington state for energy costs but also benefits from that state’s lack of sales tax and local property tax exemptions. That’s tipped the balance away from Washington state in general, and zeroed out the advantage that rural Washington state enjoyed with its sales tax incentive.

A recent commentary in The Spokesman Review notes that an estimated $1.9 billion has been invested in Hillsboro data centers since 2011, only a fraction of that has been built in Western Washington.

That’s a significant loss of a range of jobs, including electrical and IT contractors, that would go into construction of the data centers, followed by steady employment for maintenance and regular upgrades of the centers.

Currently, Washington is the only state that targets a tax incentive for data centers by location.

Legislation in Olympia, House Bill 2673 and Senate Bill 6307, which is sponsored by Sen. Guy Palumbo, D-Maltby, would extend the sales tax exemption now allowed for rural counties to the rest of the state. The result wouldn’t set rural and urban Washington against each other for data centers, but could help the state’s urban areas better compete with Oregon, in particular for a type of data center, called a “data mall,” that serves a number of customers that need such co-location centers closer to metro areas.

It’s not hard to imagine Snohomish County as a prime location for such data centers.

Such tax incentives, particularly when some of the impact would be on cities and counties that would have collected a portion of that tax, shouldn’t be traded away blindly, even with the promise of family-wage jobs from the construction and operation of such facilities. The legislation takes a careful approach, allowing only eight such data centers to benefit from the sales tax break. And it would “claw-back” the tax benefit if a particular data center doesn’t meet eligibility.

Further, the legislation requires a state legislative tax committee to track changes in a county’s tax base that result from the data centers’ tax incentive.

The Legislature has yet another opportunity to consider the effect of existing tax breaks for the range of industries and interests in the state. Senate Bill 5513, which has passed the Senate and is under consideration by a House committee, would require the state Department of Revenue to make more frequent tax exemption reports to the Legislature and also directs the Office of Financial Management to begin discussions with House and Senate committees to create more transparency and accountability regarding tax preferences.

The bill originally had a greater reach and would have required the Department of Revenue to prepare an annual tax expenditure budget that would provide more information on the effect of tax incentives, including revenue lost to the tax break, the purpose of the incentive and who would benefit, any conflicts with other state programs, and a rating on how well it meets state priorities.

The original bill would have been preferable, but the current legislations gives state agencies and legislative committees a starting point for their discussions on the need for a closer look at the tax incentives that the state provides.

Until then, providing a sales tax break could encourage the construction and operation of data centers throughout the state and continue to strengthen the state’s standing within an industry that provides thousands of family-wage jobs.

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