Data center tax exemption bill is on its way

In an attempt to attract more data centers to Idaho, the Department of Commerce is taking another stab at passing a bill that exempts such facilities from sales and use tax on information technology equipment.

This year’s bill is the same as a bill that stalled in the Idaho Senate.

“There are no changes from last year’s bill,” said Department of Commerce Director Bobbi-Jo Meuleman. “Our hope is with another year to better understand the impacts, receive industry feedback, and communicate the opportunity for Idaho in terms of wage and job growth, expanding the state’s tech sector, and development for the related infrastructure, we’re in a better position for the bill’s thorough consideration, as this continues to be a growing industry that Idaho is missing out on.”

The Boise Metro Chamber of Commerce held a presentation on Jan. 11 encouraging support for such an initiative. Among the speakers was Megan Ronk, formerly director of the Department of Commerce and now director of business innovation and development for Idaho Power.

“Our rates and power availability are one of Idaho’s great strengths,” Ronk said, adding that Idaho has the fourth-lowest large commercial rates in the country. Idaho Power is particularly interested in getting data center projects started because the company believes that it will have a power surplus until 2026, she said.

“It appears that Idaho has an opening here,” said Wayne Hammon, chief executive officer of the Idaho Associated General Contractors. “When the team from the Idaho Department of Commerce briefed us on the idea a year or so ago, I wasn’t sure if we had a legitimate shot at attracting the industry. Since then I’ve asked my colleagues in other states if they thought Idaho would be an attractive location for centers, and those who have experienced growth in the area tell me ‘yes.’”

Last year’s bill, H217, passed the House by a single vote. It didn’t make out of the Senate Local Government & Taxation Committee because of the Senate’s effort to address other tax reform and spending priorities, Meuleman said.

“What is different is the education of what data centers are and how Idaho can be poised to recruit them,” said Ray Stark, senior vice president of the Boise Metro Chamber, which has passage of the bill as one of its legislative priorities this year.  It isn’t clear to what degree Idaho has been eliminated from consideration as a potential data center site due to the lack of such a sales tax exemption, he noted. “Oftentimes we may not know,” he said.

Last year’s bill noted that implementing such an exemption would result in an estimated $600,000 annual reduction in sales tax revenue. It said $531,000 of that would have an impact on the General Fund, assuming that 10 business entities would each invest $1,000,000 in eligible server equipment per year.

The Northwest is attractive to data centers because of its relatively low cost of power, much of it from renewable and non-carbon power sources (Idaho Power has 17 hydropower plants, Ronk said), and the relative lack of seismic activity.

“Currently, Idaho is not competitive in attracting large-scale data center projects as over 20 states — including the bordering states of Washington and Wyoming — offer exemptions or rebates for sales taxes paid on eligible server equipment,” the bill’s statement of purpose continued. “Furthermore, Oregon and Montana do not have a retail sales tax and therefore no data center equipment is subject to a sales tax.”

Critics of such exemptions specifically – aside from those who object to sales tax exemptions in general – say that data centers don’t provide many jobs once they are constructed and that the companies that build them – household names such as Apple, Facebook, Google, and Microsoft — are well able to afford to pay sales tax on their equipment.

The bill may face one additional challenge this year: Two of the legislators who voted for it last year, Rep. Brandon Hixon, R-Caldwell, and Rep. Janet Trujillo, R-Idaho Falls, are no longer in the Legislature.