Georgia, Washington Poised To Expand Data Center Tax Incentives As States Compete For Growing Market

Political leaders in two of the nation’s largest regional data center hubs are doubling down on tax breaks for the industry.

The legislative efforts in Georgia and Washington come as states increasingly use tax incentives to compete for a piece of the nation's rapidly growing data center market. But these incentives have begun to face scrutiny in other localities, including the Northern Virginia county that pioneered the strategy. 

A pair of bills with bipartisan support in Georgia would extend the state’s sales tax exemption for an additional five years. And the Washington Senate passed legislation last week that expands existing data center tax breaks that are currently only available in rural communities to the entire state. 

“The legislature recognizes that rural county data center investments are necessary but insufficient for the state's total economy and competitiveness,” the Washington bill reads. “Washington is the only state that restricts incentives geographically. As a result, data centers serving urban counties requiring higher performance and that offer colocation services for multiple tenants that foster technology ecosystems are lost to other states, particularly neighboring Oregon.”

The Washington bill, which needs the signature of Gov. Jay Inslee before becoming law, builds on an incentive program that has existed with brief interruptions since 2010. Like most state-level tax exemptions designed to spur data center development, the law allows data center operators and their tenants to avoid sales tax on servers and other technical equipment like generators and backup power units. 

The pending law would make some changes to the existing regime. Most significantly, it will be available for the first time to data center developments in communities with more than 800,000 people. Language in the bill limits the exemption to six operators per year and adjusts the job creation requirements needed to qualify: Operators must now provide three jobs above a certain wage threshold for every 20K SF of server space.  

According to a Data Center Knowledge report, advocates for the new tax breaks say the exemption is needed to compete with neighboring Oregon, a growing data center market. They point to the data center boom that emerged in the wake of the 2010 incentives, when companies like Sabey, Microsoft, H5, CyrusOne and NTT all built facilities in Quincy, Washington. 

While the Georgia Legislature’s efforts to extend the state’s data center tax breaks are further from the governor’s desk than the parallel efforts in Washington, a pair of tax breaks cleared a key procedural threshold that makes it likely they will be adopted in the coming months, according to a report by legal firm Eversheds-Sutherland. 

The proposed legislation would extend the state’s existing incentives — like Washington’s, primarily an exemption on sales tax for equipment inside data centers — by five years, pushing their sunset date from 2028 to 2033. New job creation requirements are also part of the Georgia bills, which would require more job creation in rural communities and provide an income tax credit for data center workers in communities with fewer than 50,000 people. 

Georgia and Washington contained three of the 10 largest data center hubs in the U.S. as of August, according to a CBRE report. Atlanta was the sixth-largest market by inventory with 177.8 megawatts, the main unit of measurement in the data center sector. Central Washington was the eighth-largest market with 158.4 MW, and Seattle was the 10th-largest market with 137 MW. 

Industry insiders say that the presence of some kind of tax incentive at the state or local level has become all but a prerequisite for data center development. Most states now offer such incentives, as do many counties and other local governments, typically in the form of reduced sales tax or a rapid depreciation schedule on the equipment inside data center facilities. 

But while these incentives are becoming more common, they are also drawing more scrutiny. Even in the leading data center market of Loudoun County, Virginia, local political leaders and opinion pages have questioned the county’s much-emulated incentive program after tax revenue fell below projections in 2020. More recently, Pennsylvania’s recently enacted state-level data center tax exemption is coming under fire due to its widespread use by cryptocurrency miners, who critics say weren't the law’s intended target.