Millions In Potential Sales Tax Breaks For Server Farms Are Tucked Into The New State Budget
Tucked into the latest state budget agreement is tens of millions of dollars in new sales tax breaks for companies that build and run server farms known as data centers.
Thousands of data centers, each holding thousands of server computers, have been built by small and big tech companies all over the country in the last decade — all in the name of powering the massive internet ecosystem we’re all used to.
An industry map shows of nearly 2,000 internet-powering server farms currently up and running, just over forty are in Pennsylvania. A bipartisan group of state lawmakers is looking to change that.
Under the tax code section of last month’s budget agreement, any company that builds a center in the Keystone State won’t have to pay sales tax on the thousands of pieces of equipment needed. Rep. Donna Oberlander (R-Clarion), who sponsored the idea, is among those hoping that exemption will help get more of the centers built here.
“This measure has the potential to create thousands of new jobs in an emerging industry while also serving as a catalyst for greater broadband deployment,” Oberlander’s spokesperson wrote in a news release.
The state has been giving tax refunds for data center equipment purchases since 2016, but had capped the program at $7 million per year. The new sales tax program, which does not have a cap, will replace that one at the end of this year.
Under the deal, the state stands to lose as much as $55.3 million dollars in taxes in the next few years, according to a Democratic Appropriations committee analysis. But according to economic development magazine Area Development, each center typically creates about 25-50 permanent jobs and as many as five times that in other industries like construction.
House Republican spokesman Jason Gottesman said given what the centers could do for the state’s post-pandemic recovery, the tax breaks are a small price to pay.
“This is a critical component…of that, to make sure that businesses know that they are welcome here and we can remain competitive when other people are trying to take these data centers out of Pennsylvania,” Gottesman said.
To get the tax break, tech companies have to invest between $75 and $100 million in the county they put their data center in over four years. If they don’t, the state has the option to recoup any taxes it forgave.
The tax break program is intended to boost local economies, but there is an environmental tradeoff: just one data center can need hundreds of thousands of gallons of water a day just to cool its computers. The U.S. Department of Energy has been running a campaign for years encouraging tech companies to make those facilities more energy-efficient, because they use so much of the nation’s electricity.
Gov. Tom Wolf, who said he helped develop the new tax break idea, said the potential economic growth is worth it. Pennsylvania, he noted, is particularly well-positioned to benefit from a data center boom.
“”There are a lot of reasons why I think Pennsylvania is a natural for data centers: we have a lot of electricity generated in Pennsylvania. Of course we have a great workforce, and there are a lot of jobs in the construction of these data centers, so I think this is a good thing for Pennsylvania,” he said.