Is Washington state less competitive if data center tax break is repealed?

For years Washington sought to woo the data-center industry by offering tax breaks, helping to secure the state’s position as a thriving industry hub.

But the just-wrapped legislative session has sparked major concerns among data-center leaders.

Data centers are facilities that host IT infrastructure to run services and applications and to manage and store data — helping to support AI and other technologies.

The state counts more than 100 data centers today, which have been credited with serving as an economic boon for rural areas. Central Washington, for example, has attracted tech giants like Yahoo and Microsoft.

State lawmakers in 2010 started offering sales tax breaks to data centers on computer equipment, usually replaced every three to five years, as well as on the installation, according to a co-published article from ProPublica / The Seattle Times — helping to save certain companies millions of dollars.

But the Legislature-approved Senate Bill 6231 would erase the tax exemption for refurbishing or replacing old server equipment.

The bill’s prime sponsor, Democratic Sen. Noel Frame of Seattle, noted during a public hearing before the House Finance Committee earlier this month that the legislation was requested by the Office of Financial Management and embedded in the governor’s budget.

Frame told lawmakers that they faced a choice about the tax preference: Do private companies continue to benefit from it, or does the state repeal it to avoid having to make even further budget cuts?

“We don’t get into the policy of data centers in this bill,” Frame said. “It is simply about the tax policy.”

Controversy has buzzed around data centers and their implications for the state’s power supply and the environment. Some reports have linked data centers’ presence to heightened household energy costs.

Yet communities like Quincy in Central Washington have credited such centers with a boost in property taxes and the creation of jobs.

A representative from the Grant County Public Utility District testified during a public hearing last month that data centers “pay more than the cost of service to serve them for their electrical rates and pay the full cost of their capital improvements,” which “enables Grant PUD to keep rates affordable for our homeowners and agricultural customers.”

Dan Diorio, vice president of state policy with the Data Center Coalition (DCC), said in a news release that lawmakers’ actions equate to a “self-inflicted hit to the state’s economy.” He cited concerns that the legislation will effectively close Washington off for business.

Data centers underpin just about every industry, he said in an interview. They support online activity such as virtual purchases, telehealth appointments and banking transactions. The average household has 21 connected devices including phones, laptops, Ring doorbells, Nest thermostats and more, he said.

Now companies wanting to reinvest and build will look to similar tax incentives in dozens of other states, Diorio said.

“There is significant competition here throughout the western United States,” Diorio told McClatchy. “And Washington now is making itself less competitive than 36 other states in the country.”

Diorio said he doubts that the bill will raise as much revenue as supporting lawmakers had hoped because “behaviors will respond accordingly.” Some coalition members have relayed that Washington has effectively been crossed off their list, he said.

Last month DCC joined the Washington Technology Industry Association and labor groups, chambers of commerce and business organizations in writing a letter to leading lawmakers about their concerns over SB 6231 and House Bill 2515. The latter bill, which sought to impose various restrictions on data centers, ultimately fizzled out.

The letter cited analysis showing that more than 47,000 jobs across the state are supported by data centers, including through construction, skilled trade and maintenance roles. It also said that data centers helped to create about $1.8 billion in local and state tax revenue in 2023.

Sen. Sharon Shewmake, who chairs the Senate Environment, Energy & Technology Committee, was the prime sponsor of HB 2515’s Senate companion.

The Bellingham Democrat said the state’s hydropower system has offered cheap, plentiful electricity, but that it’s close to being maxed out. The state requires more transmission capacity and renewable resources, she added. Now, with the data center boom and demand, Shewmake argued that such companies should be willing to contribute equitably and act as assets to the grid.

“I think that data centers can pay their fair share and be good environmental stewards and still want to locate in Washington state,” she said, adding that she wasn’t a huge fan of stripping the tax incentive, but that it was needed to balance the budget.

Shewmake expects HB 2515 to be refined during the interim and reappear next year during the longer 105-day session.

Sen. Matt Boehnke, a Kennewick Republican, said he shares DCC’s concerns that the data-center legislation this session sends a negative signal to the industry. Plus, he said, other tax policies — namely, this year’s proposed income tax on millionaires and last year’s record-high tax increases — are raising red flags for innovators.

Boehnke, who serves as ranking member on the Senate Environment, Energy & Technology Committee, drew parallels between present day and the transformative nature of the Industrial Revolution.

“This window is going to close soon,” he said. “My goal is, I hope we take advantage of this time in this small window that Washington will still be at the forefront of this innovation.”

Simone Carter

The Olympian

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