Data center tax bill gets hearing but won’t progress this session

Sharon Fisher//April 3, 2019//

Data center tax bill gets hearing but won’t progress this session

Sharon Fisher//April 3, 2019//

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photo of involta network operations center
The network operations center of the Involta data center in southwest Boise. Photo courtesy of Involta.

A bill to attract data centers to Idaho by giving them a tax break got printed this session after all, though it isn’t expected to progress this year. But a section intended to make the bill more palatable to Idaho legislators by giving the tax break to smaller Idaho companies — as well as technology behemoths — is, so far, not there.

“This year’s bill should be considered a working draft,” said Rep. Greg Chaney, R-Caldwell, who carried the 2019 bill as well as ones in previous years. “The threshold is something we’ll have to work out over the interim.”

The bill is intended to give data centers a break on sales tax for the equipment they buy, which proponents say will be more than made up by other revenue such as property tax, corporate income tax, taxes paid by employees and sales taxes on other equipment.

All the states surrounding Idaho either have such a sales tax exemption, or no sales tax at all, such as Oregon. Supporters of the bill say that’s why Idaho doesn’t have the large data centers those states have attracted.

Opponents don’t like giving tax breaks to companies, particularly giants like Facebook and Google that are thought to be well able to afford to pay taxes. That was the reasoning behind adding smaller data centers to the bill.

“H279 is focused more on larger data centers,” Chaney said. “We have no larger data centers now, so we’re not giving anything up to include an exemption for taxes we aren’t collecting. The rationale behind many exemptions is that the exemption will stimulate other economic activity. As we discuss lowering the threshold, one question we’ll need to consider is at what point might we no longer be stimulating new economic activity but instead be discounting existing activity.”

photo of john foster
John Foster

John Foster, partner with Kestrel West, and a lobbyist for Involta, one of the smaller local data centers that had been working on the bill, said he and his client are “pleased to see that legislators are willing to discuss the economic value of data centers.”

“We look forward to talking with them and others in the coming months about the value provided to Idaho’s economy by co-location data centers and their customers.”

The bill didn’t have a public hearing, but it did have an informational hearing to a joint session of the House and Senate Revenue & Taxation committees, with no public testimony, held by lobbyists representing Facebook.

Presenters included Stephen Thomas, a partner with Hawley Troxell; and Steve DelBianco, president, and Barbara Comstock, advisor, to NetChoice, a Washington trade association representing eCommerce businesses and online consumers. They painted a rosy picture of data centers’ impact, such as a 2015 study indicating 43,000 jobs, $3.2 billion in labor income with wages averaging $100,000 a year and $10 billion in economic output.

While critics have said data centers aren’t a good investment because they only create about 300 jobs once constructed, Comstock, a former Congressional representative to Northern Virginia, pointed out that the low number of employees means data centers don’t put pressure on infrastructure such as roads and schools.

In addition, the long-term jobs are primarily technician positions, and the companies train local people to staff them, Thomas said.

The sales tax exemption wouldn’t represent a loss of tax revenue, because if the bill didn’t pass, the data centers wouldn’t locate here in the first place, Thomas said. Other states, such as Ohio and Indiana, that don’t currently have such sales tax exemptions are enacting them, he said. In addition, the improved backbone to support the data centers would provide better internet service for the area, he said.

Several legislators on the committee sounded receptive.

“Time is of the essence,” said Sen. C. Scott Grow, R-Eagle. “Why aren’t we doing it this year?”

“Can you spell ‘Pocatello’?” asked Sen. Mark Nye, D-Pocatello.