House Bill 521 — Data center tax exemption

House Bill 521 — Data center tax exemption

by
Lindsay Atkinson
February 26, 2020
Lindsay Atkinson
February 26, 2020

Bill description: HB 521 would give a tax exemption to data centers on their purchases of certain equipment.

Rating: -1

Does it directly or indirectly create or increase any taxes, fees, or other assessments? Conversely, does it eliminate or reduce any taxes, fees, or other assessments?  

This bill would grant a sales tax exemption that would save certain data centers in the state of Idaho from paying sales tax on certain eligible server equipment, such as “rack servers, chillers, storage devices, generators, cabling, and enabling software integral to or installed on such equipment.” No estimate is given in the statement of purpose, but a similar bill last year estimated that the fiscal impact of this exemption could be $600,000. This exemption would provide an incentive for data center companies to relocate here because of a more competitive business environment.

(+1)

HB 521 also has the potential to lower the tax levy rate for all properties in the taxing district in which a data center is located, from what it would otherwise be. The end of this bill states that “The amount of taxable market value of new construction shall not include any new construction of property for which an exemption from sales and use tax has been granted pursuant to section 63-3622VV, Idaho Code.”

This effectively removes the value of construction of a new data center from a taxing district’s new construction roll. When a local government calculates its tax levy, it can add the value of new construction to the 3% increase it can take by state law. Removing a data center from the category of new construction limits how much a government can raise its levy.

For example, if Data Center A were constructed last year and determined to be a piece of high-value new construction, the value of the data center would be added to the city’s tax levy, adding to the 3% yearly increase the city would already take. Thus the city would levy a tax increase of, for example, 3.2%.

But  under this bill, if Data Center B is constructed in 2021, its value would not be added to the new construction roll of the city it is in. Since it would not be on the roll, then the city could not  add its value to its yearly 3% increase. Thus the city would levy a tax increase of only 3%.

Thus this provision within this bill limits the tax increase in the taxing district where a new data center is built, compared to what the increase would be without this provision.

(+1)

Does it increase government redistribution of wealth? Examples include the use of tax policy or other incentives to reward specific interest groups, businesses, politicians, or government employees with special favors or perks; transfer payments; and hiring additional government employees. Conversely, does it decrease government redistribution of wealth?

Due to the strict requirements for the sales tax exemption in this bill, only a handful of businesses that build or relocate their data centers to Idaho would take advantage of this exemption. (A similar bill last year estimated a potential total of 10 businesses). The state would provide an exemption to a select group of businesses while average Idahoans deserving a tax break would not get one. This rebate comes at the expense of other businesses in the state. When some businesses receive exemptions, other taxpayers, including individuals, must pay more to make up the difference.

(-1)

Does it give government any new, additional, or expanded power to prohibit, restrict, or regulate activities in the free market? Conversely, does it eliminate or reduce government intervention in the market? 

This bill would put the state in the position of interfering in the free market by giving arbitrary benefits to specific types of businesses based on factors deemed important to the government. These factors include the size of the capital investment made (this bill calls for $250 million), the number of jobs created (this bill requires 30), and the compensation for each of those jobs (equal to the average weekly wage in the county, or higher).

(-1)

Does it increase barriers to entry into the market? Examples include occupational licensure, the minimum wage, and restrictions on home businesses. Conversely, does it remove barriers to entry into the market? 

In establishing minimum investment and wage thresholds for this tax benefit, HB 521 could cause some businesses of the same type to fail to receive the tax break, thus leaving that smaller company at a disadvantage, making it difficult for such a business to break into the market.

(-1)

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