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State: Data centers are bypassing Idaho in search of tax breaks

Colocation cabinets at Fiber Pipe. These cabinets are used to store servers from individual companies and multiple power sources and cooling mechanisms in order to keep the servers operating properly. Photo courtesy of Fiber Pipe.

Co-location cabinets at Fiberpipe. The cabinets are used to store servers from individual companies, power sources, and cooling mechanisms. Photo courtesy of Fiberpipe.

A new tax incentive designed to help data centers offset the cost of replacing equipment could help Idaho attract large companies such as Google and Amazon, according to the Idaho Department of Commerce.

The department proposed a bill to the House Revenue and Taxation Committee March 2 to grant a sales and use tax rebate to data centers that invest at least $25 million in capital investments within a five-year period and create 20 jobs within a two-year period. Additional rebates would then be given for equipment purchases worth at least $5 million.

About 20 states have tax incentives designed to attract data centers and five states don’t have sales tax. The exemption would help Idahoattract data centers and additional investment in technology, said Bobbi-Jo Meuleman, chief operating officer at the Idaho Department of Commerce.

“Idaho is in a prime location to attract large data centers because we have low energy costs, are at low risk for a natural disaster, have a high desert climate that provides free cooling and can help save data centers energy and we have available land,” Meuleman said. “The only issue we face when it comes to putting pencil to paper on these projects is that we don’t offer tax relief.”

Several companies have visited Idaho, but have opted to build data centers in states that have passed tax incentives to offset the cost of replacing equipment. Data centers have to replace servers and other pieces of equipment every three to five years, Meuleman said.

The department couldn’t name the companies that have visited Idaho because of confidentiality agreements, but Meuleman said that Amazon and Google are good examples of the types of companies that have been building additional data centers around the country.

“I was in Washington D.C. three years ago and had the opportunity to go to a presentation by Google where they were discussing how they make their decisions,” said Jay Larsen, president of the Idaho Technology Council. “They had just decided to go to Provo, Utah and they did that because of an incentive like this.”

The house committee voted unanimously in favor of the bill after listening to testimony from three of Idaho’s seven data centers and from several business associations in favor of the incentive. The bill will now go before the full House of Representatives.

“Idaho is easily a top five when it comes to site selection,” Matt Klinger, vice president of the data center Fiberpipe, said about Idaho’s climate and geography. “But it comes down to a checklist and the last box that these companies are unable to check off is tax incentives.”

Matt Klinger

Matt Klinger

Klinger estimated that over the last few years his data center as well as other Treasure Valley data centers such as Involta and DataSite have had potential customers decide to settle in other states.

“These type of companies usually sign five- to 10-year contracts with their data centers,” Klinger said.

Involta, DataSite and Fiberpipe all said that the creation of this incentive will help with expansion projects that the data centers have planned. All three companies are looking at opening centers in northern and eastern Idaho.

“We have a lot of businesses here that are prime candidates for a data center,” said Jeffrey Leonnig, regional director at Involta. “But they are being courted to move their components into other states.”

Leonnig said many companies that wouldn’t move their corporate headquarters to Idaho are looking for a place where the risk of natural disasters is relatively low.

“Several companies are currently looking to move their data centers east of the Cascades,” he said.

The fiscal note attached to the bill estimates that Idaho will lose about $600,000 in revenue as existing Idaho data centers qualify for the rebate, but the state will earn that money back as new companies move into the area and existing companies expand, said Alex LaBeau, president of the Idaho Association of Commerce and

Alex LaBeau

Alex LaBeau

Industry.

“This represents an exciting opportunity for us to attract and grow a new industry in Idaho,” Meuleman said.

The bill includes a 2024 sunset so that the tax incentive will lapse if Idaho doesn’t achieve the increase in technology investment it hopes to, Meuleman said.

About Benton Alexander Smith

Benton Alexander Smith is a reporter for the Idaho Business Review, covering the Idaho Legislature, new business, technology and financial services.