State tax break entices tech firms to build data centers

To attract data centers to rural counties, Washington state will give tax breaks to tech companies that build them.

Supporters of the tax break hope the exemption will spur economic development and job creation in Eastern Washington. Both houses of the state Legislature passed the measure this week in Olympia.

"This isn't just a win for data centers, this is a win for Washington state and particularly small rural counties," said state Sen. Janéa Holmquist, R-Moses Lake. "This is going to bring investment back to Washington, put people back to work."

The measure passed as the Legislature works to close a $2.8 billion budget shortfall. But Holmquist said she sees this as "a net win," not a loss of potential state revenue. The state will still collect sales taxes and business and occupation taxes from building construction, and the new buildings will lift property taxes, she said.

Legislators and businesses have been worried about losing new data centers to other states since Microsoft, citing the state's tax law, moved its cloud- computing platform Azure out of Washington to another U.S. data center. The news was distressing to the Grant County town of Quincy, where Yahoo, Microsoft and Intuit have built large server farms, drawn to the county's cheap and green hydropower.

Server farms send data and software across the Internet to users and to Web sites around the world. Microsoft continues to operate a data center in Quincy but chose last year not to expand Azure there. Running a server farm requires large amounts of energy and bandwidth.

Facebook and Amazon.com have also opted to build data centers in Oregon instead of Washington, said Patrick Boss, director of public affairs at the Port of Quincy, which has been marketing its hydropower and unused bandwidth capacity.

"Already in the past couple of days we've had a couple of companies inquiring" about building in Quincy, Boss said. "The passage has definitely stimulated interest. We're definitely excited abut being on the level playing ground with other states, especially Oregon."

The new tax exemption applies to sales of server equipment that will be installed in a data center; labor and service charges for installing servers; sales of power infrastructure equipment; and labor and services for construction of power infrastructure.

To qualify for the exemption, data centers must create at least 35 family-wage jobs with health insurance. The centers must be at least 100,000 square feet and construction must begin between March 31, 2010, and July 1, 2011.

Holmquist said that when Yahoo built its data center, the project created 400 construction jobs over 18 months.

"This is clearly an economic boost to the area," said David Johnson, executive secretary of the Washington State Building and Construction Trades Council. "We're running at close to 50 percent unemployment in Eastern Washington for building trades."

The state Senate passed bill 6789 on Tuesday, by a 39-4 vote, and the House approved it by a 91-2 vote on Wednesday.

Sharon Pian Chan: 206-464-2958 or schan@seattletimes.com