KANSAS CITY, Mo. (AP) — The former limestone mine seemed perfect for a large computer data center. The air was cool. The rock walls provided a defense against natural disasters. And the tunnels bored into a Kansas City hillside had access to abundant electricity and fiber-optic cables.
State-by-state look at incentives for computer data centers
The Associated Press
States are competing to attract computer data centers by offering financial incentives, often by waiving sales or property taxes on the expensive equipment they use. A state-by-state look at those incentives, how much they have cost taxpayers and which companies have benefited.
This summer, Alabama landed its first big data center project since adopting a 2012 law that exempts those businesses from state and local sales and property taxes. The law offers up to 30 years of tax breaks for data centers investing $400 million and creating at least 20 jobs with an average annual compensation of $40,000. Google is projected to get $81 million of incentives from the state, plus additional local incentives, for a $600 million facility at the site of a former coal-fired power plant.
No incentives are offered for data centers. "We would love to have data centers here. We just don't want to spend money," said Jerry Burnett, deputy commissioner for the Alaska Department of Revenue.
At least 10 companies, including eBay and GoDaddy, have been approved to receive sales tax exemptions for data centers under a 2013 law. Companies have claimed at least $5.5 million in tax breaks so far, although Arizona will not say how much each data center has received. The tax breaks can last 10 to 20 years.
While it has no specific incentives for data centers, Arkansas has used a variety of programs to provide tax breaks to numerous data-center projects. Among the largest is nearly $20 million of incentives approved for Hewlett-Packard.
Numerous data centers are in Silicon Valley, but the state offers no specific incentives. "If anything, they are being built in spite of the fact that we don't have specific tax credits or incentives for them," said Brook Taylor, a spokesman for the California Governor's Office of Business and Economic Development. "Companies are just building them here because it makes sense."
Several data centers have benefited from Colorado's general job-based tax breaks. But business groups have been lobbying for a more specific incentive. A bill that passed the House this year but died in the Senate would have offered a sales tax refund on equipment for data centers.
Connecticut's economic-development agency says it has approved incentives for one data center — projected at $6 million for Datto Inc., authorized last year.
No data centers have received incentives.
Although it has no specific data-center incentives, Florida has used its general incentive programs for about a dozen companies with business classifications encompassing data centers. In some cases, no state payments ever were made because the projects were abandoned.
Georgia offers a sales tax exemption for equipment in data centers investing at least $15 million annually, and Atlanta ranks among the leading markets for data centers. But the state will not identify which companies have received the tax break and has no totals for how much tax revenue has been waived.
Hawaii's economic-development agency says one data center, DR Fortress in Honolulu, has received job-creation incentives. The company hired 12 people. The state says the dollar value of the incentives is confidential.
No specific incentives for data centers.
Chicago rates among the top data-center markets even though Illinois has no specific incentives for the industry. The state lists only a few data-center projects that received incentives through its general programs.
Data centers investing at least $10 million can receive local personal property tax exemptions on their equipment under a 2009 law. Some data centers also have received state tax breaks, including $7.5 million of incentives for ExactTarget.
Iowa offers sales tax breaks to data centers investing as little as $1 million, with larger incentives for projects topping $200 million. It also has no property tax on equipment. Iowa has approved $41 million in incentives for Microsoft and $38 million for Google, which have each invested about $2 billion. Facebook was approved for $18 million in incentives for its $300 million data center.
While it has no specific data-center incentive, Kansas charges no property tax on new equipment, which is beneficial for data centers. Some data centers also have received incentives through the state's general economic-development programs. Data center operator CoSentry is among those that chose the Kansas suburbs of Kansas City, Missouri, because of the tax breaks.
A 2010 Kentucky law offers a sales tax refund for computer system equipment for data centers investing at least $100 million, but no company has used the program. Several smaller data centers have received aid through the state's general incentive programs.
No specific incentives for data centers.
Although it has no specific data-center incentives, Maine says it has authorized about $5 million in incentives for data centers through its general economic-development programs.
Maryland lists just one data-center project, a $60 million investment by T. Rowe Price, which was authorized for a $300,000 conditional loan.
The state lists no incentives to data-center companies. But it provided a $25 million grant and $14.5 million in tax credits for the development of the Massachusetts Green High-Performance Computing Center, a data center run as a collaboration among five universities.
The state has no specific data-center incentives, but Michigan lists about $7 million in incentives going to data centers through its general economic-development programs. That includes $4.8 million for an expansion of NetEnrich in Ann Arbor.
Minnesota first enacted a data-center tax break in 2012 and has already expanded it. Data centers of at least 25,000 square feet costing at least $30 million can get a 20-year sales tax exemption on equipment and energy and a permanent property tax exemption on equipment. Ten facilities have been certified for the tax break with a projected investment of $800 million, but the state declined to release how much incentives the companies could receive.
A 2010 law offers a sales tax exemption on computer equipment for data centers investing at least $50 million and creating at least 50 jobs paying 150 percent of the average state wage. No data centers have received the incentives.
A law that took effect in late August offers sales tax exemptions to new data centers investing at least $25 million and employing at least 10 people in well-paying jobs. Existing data centers can qualify by investing at least $5 million and adding five well-paying jobs. One company, Bluebird Network, has already cited the new law while announcing a data center expansion in Springfield. Missouri previously provided incentives to some data centers, including LightEdge Solutions in Kansas City, through general economic-development programs.
Montana has no specific incentives for data centers. So far, it has no big data center projects despite marketing its availability of land, energy, cool climate and low risk of natural disasters. It also has no state sales tax. "It's been hard to stay visible in lieu of what other states have done," said Sean Becker, administrator of the Montana Office of Tourism and Business Development.
Under a 2012 law, Nebraska offers several tiers of sales and property tax breaks to data centers, starting with those that invest at least $3 million and employ at least 30 people, or invest at least $37 million while holding employment steady. Among its headliners is Yahoo, which received at least $13 million of state incentives and has expanded its operations beyond just a data center. The data-center incentives "kind of gets us in the door with the company," said Mark Norman, of the Greater Omaha Economic Development Partnership.
A law passed earlier this year expanded Nevada's sales and property tax exemptions for data centers. The state is home to data center developer Switch, which provides services to more than 1,000 clients. In July, the state approved an estimated $229 million of tax breaks for Switch as part of a $3 billion expansion at sites in Las Vegas and Reno. Nevada previously approved $55 million in incentives for Apple for a $400 million cloud-computing data center in Reno.
No incentives to businesses.
New Jersey says it has authorized a projected $134 million in incentives to about a dozen businesses for data-center projects since 2000. The actual amount of incentives received so far is significantly less.
No data centers have received incentives.
A law in place since 2000 provides a sales tax exemption for equipment used by Internet data centers, but New York has no estimate of the amount of taxes waived. It also has occasionally provided other incentives to data centers, including almost $40 million in state and local aid for Yahoo to undertake a $131 million data center expansion in the western New York town of Lockport.
State law provides a sales tax exemption for equipment and electricity used by data centers that invest at least $150 million in poorer counties or $225 million in other counties. North Carolina declined to identify the companies getting the tax break but estimated it has waived $62 million in revenue since 2008. While recruiting Apple in 2009, North Carolina also changed its corporate income tax laws, resulting in a projected $46 million savings over a decade if Apple invested $1 billion in its data center.
No incentives for data centers have been approved, but North Dakota is hoping that will change. A law that took effect this year provides a sales tax exemption on computer equipment for data centers of at least 16,000 square feet.
Since enacting a sales tax break in 2011 for data centers that invest at least $100 million, Ohio has since lowered the required payroll threshold from $5 million annually to $1.5 million. The largest recipient of aid is Amazon subsidiary Vadata, which is projected to get $81 million in state incentives plus nearly $20 million in local incentives to invest $1.1 billion in three data centers near Columbus.
A law dating to 1993 provides a sales tax exemption for equipment bought by businesses engaged in computer services or data processing, as long as most of the revenue comes from out-of-state sales. Oklahoma also offers general incentives. It listed nearly $29 million of approved incentives for six data centers, but most of those projects were terminated, often for failing to meet benchmarks.
There is no sales tax in Oregon, which benefits data centers. Companies also can receive property tax exemptions through local enterprise zones. State reports show data centers have received $159 million in property tax breaks. That includes $111 million for Google, $32 million for Facebook and nearly $11 million for Vadata. Those figures are expected to grow as data centers continue to expand.
The state has no specific data-center incentives but has provided a relatively small amount of aid to some data centers through general economic-development programs. Bills proposing a sales tax exemption for data centers are pending this year in the state House and Senate, which remain in session.
No incentives for data centers.
A law offers a sales tax exemption on computer equipment and electricity used in data centers that invest at least $50 million and employ at least 25 people in well-paying jobs. Google has announced investments of $1.2 billion in its South Carolina data centers, but the state says it has no estimate of the tax breaks.
The state has no specific data-center incentives but has offered aid to at least a couple of data-center projects through its general economic development programs. Chief among those: $4.6 million in incentives for ADP, which provides cloud-based employee management services.
A state law offers sales tax breaks on computer equipment and electricity for data centers that invest at least $250 million. The state declined to say how much revenue has been waived through that program. It also has offered other general incentives to data center projects, including $2.3 million for Nashville-based health care provider HCA.
A 2013 law offers a sales tax exemption on equipment and electricity for data centers that contain at least 100,000 square feet, invest at least $200 million and employ at least 20 people at above-average wages. The Texas comptroller's office says five data centers have qualified, including ones run by Microsoft, LinkedIn and State Farm. But it says the amount of sales taxes waived is not reported.
Utah has made use of its general incentive programs to lure a variety of data centers. It has approved a projected $143 million in incentives for data centers that are expected to invest a total of nearly $1.2 billion. That includes $40 million in incentives for Adobe Systems, $32 million for Xactware Solutions, $27 million for eBay and $15 million for Oracle.
No incentives for data centers.
Northern Virginia, just outside Washington, D.C., is one of the top spots nationally for data centers. The state has updated its sales tax exemptions for data centers several times in recent years. Last year alone, Virginia waived an estimated $48 million in state and local sales tax revenue for data centers. The state lists more than 60 data centers eligible for the sales tax break with a combined investment of $5.8 billion. Companies benefiting include Facebook, Microsoft, Ticketmaster, Bank of America, Capital One, Visa and the Amazon subsidiary Vadata.
About a decade ago, Microsoft and Yahoo began building data centers in rural Washington, due partly to affordable hydropower from the Columbia River. Since then, Washington has enacted a sales tax exemption and updated it several times to keep pace with competition from other states. Among the companies approved for the tax break are Microsoft, Dell and Costco. But Washington has not disclosed how much of a tax break they received.
Data centers can receive both a sales tax exemption and a property tax break on equipment. West Virginia declined to disclose the identities of the companies receiving the breaks. The revenue department said 29 entities received the property tax break but described the impact on revenue as "marginal" — about $170,000 per year.
While it has no specific data center incentives, Wisconsin has authorized a projected $10 million in incentives to about a dozen companies offering data center services.
A 2011 law offers data centers that invest at least $5 million a sales tax exemption on computer equipment. Data centers that invest at least $50 million also can get a sales tax break on power supplies and cooling equipment. The biggest beneficiary has been Microsoft, which is projected to receive $17 million in incentives while investing $355 million in its data center.
Source: Associated Press research of laws and interviews with economic-development officials in all 50 states.
But the mine lacked something important: tax breaks. Without them, several companies chose instead to locate their data centers in neighboring Kansas. At least one major project opted for North Carolina.
"There were people who wouldn't even come and look," said Ora Reynolds, president and chief executive of Hunt Midwest Enterprises Inc., which has been marketing its SubTropolis caves. Financial incentives, she learned, were "absolutely crucial."
Similar competitions for business are playing out across the country as states increasingly offer lucrative tax breaks to attract the data centers that function as the brains of the Internet. An Associated Press analysis of state revenue and economic-development records shows that government officials extended nearly $1.5 billion in tax incentives to hundreds of data-center projects nationwide during the past decade.
The actual cost to taxpayers is probably much higher because some states refused to disclose the amount of taxes they waived, citing confidentiality laws. In many cases, cities and counties sweetened the incentives by forgiving millions more in local taxes.
The benefits are debatable. Although they cost hundreds of millions of dollars to build and equip, the centers employ relatively few workers. That means they produce little in the way of new income taxes but could provide a surge in property and sales taxes — if governments don't waive those taxes, which many do.
Some officials doubt the tax breaks are worth it because they typically benefit a single community while depriving the state budget of money that might otherwise help schools, lower the cost of college tuition or pay for roads and other infrastructure.
"Does it make sense to pick winners and losers for a massive statewide subsidy for, in effect, one county?" said Washington state Rep. Reuven Carlyle, who leads the House Finance Committee and voted against an extension of the data-center sales tax break.
Although invisible to most people, data centers are a part of everyday life. Every time consumers shop online, stream a movie or tap an app on their smartphones, they make use of a highly secured data center that stores and processes vast quantities of information in long rows of computer servers and hard drives.
Firms such as Apple, Amazon, Google, Microsoft and Yahoo often run their own data centers. Others function like landlords, renting space on their computer racks to financial institutions, health care companies and other businesses.
At least 23 states now have specially tailored incentives for data centers, most of which have been enacted or updated in the past five years, the AP review found. At least 16 others have used general economic-development programs to offer them incentives.
The subsidies appear likely to grow along with demand for data centers fueled by cloud computing and a reliance on outside firms to provide computer infrastructure for businesses.
"Historically, states have offered a lot of exemptions for manufacturing," said Randy Hilger, a principal at the tax services firm Ryan LLC. "But as we become more and more of a service economy, you're seeing states react with their exemptions."
The SubTropolis facility finally got its first data center last year when LightEdge Solutions Inc. opened with the help of a projected $15.5 million in sales, income and property tax breaks. Now it's looking to expand with the aid of a new Missouri law offering data centers a sales tax exemption on computers, equipment and utilities.
A state analysis projected that LightEdge could produce $24 in new gross domestic product for Missouri's economy for every $1 of state incentives over a decade. But most of its incentives come from local governments, and officials at the city and county economic development entities said they had no cost-benefit analysis for the project.
It's hard to know whether the incentives ultimately will pay off. Since opening in April 2014, LightEdge has filled about three-fourths of its initial 22,000 square feet of space. At any given time, it has three or four people working there.
In Washington, a state sales tax break has encouraged a proliferation of data centers in the rural town of Quincy, which does not exempt them from property taxes. As result, local tax revenues have more than quadrupled over a decade, helping build a new library, justice center, animal shelter and other public infrastructure.
"It certainly is a positive financial impact," said Curt Morris, a commissioner for the Quincy Port District.
Not all data centers receive government subsidies. Many have been built without incentives near technology hubs such as California's Silicon Valley. But the spread of high-speed Internet connections across the country has cleared the way for them to be built almost anywhere that offers cheap, abundant electricity — or enough tax breaks to make it worthwhile. For example:
— Amazon subsidiary Vadata Inc. is investing about $1.1 billion to build three data centers in suburban Columbus, Ohio, lured partly by $81 million in state incentives and nearly $20 million of local incentives, including free land at one site.
— Alabama, which passed a law in 2012 offering special tax breaks to data centers, landed its first blockbuster recruit this summer: a $600 million Google data center to be built at the site of an old coal-fired power plant with the help of $81 million of incentives.
— Nevada announced an even bigger deal, awarding an estimated $229 million of sales and property tax breaks for data center developer Switch to get started on $3 billion of expansions at sites in Las Vegas and Reno, one which the company claims will become the world's largest data center.
Switch's vice president of government and public affairs, Adam Kramer, calls the company's data centers "an economic magnet" that attracts other businesses. He points to a decision this summer by the online video game firm Machine Zone to invest $50 million and hire 78 employees in the Las Vegas area. In documents submitted to the state, Machine Zone cited two factors — Switch's data center and an estimated $3.8 million of incentives from Nevada.
But not every data center draws other high-tech firms to its side, and some local officials have mixed views on their merits.
In Oregon's rural Morrow County, for example, Vadata received a 90-plus percent property tax exemption last year, waiving an estimated $5.4 million in taxes, according to public records. That tax break could double this year as Vadata's newly expanded facilities are projected to be 97 percent tax-exempt.
"I don't believe it's fair," said Morrow County Assessor and Tax Collector Mike Gorman. "It's just kind of a loophole in the system that may allow them to continue on into perpetuity" without paying much tax.
Associated Press Writer Rachel La Corte in Olympia, Washington, contributed to this report.