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States Use Tax Incentives to Lure In Data Centers

In the drive to create new, highly paid jobs, a number of states are putting considerable effort and money into getting companies to site their data centers within their borders.

The battle is perhaps best typified by Washington's new tax incentives for companies that build data centers in rural parts of the state. As reports:

Last year, the state rejected a proposed tax break, which prompted Microsoft to move its cloud computing platform Azure out of Washington State to another data center in the US. The news was distressing to the town of Quincy, where Yahoo, Microsoft and Intuit have built large server farms, drawn to Grant County's cheap and green hydropower.

Since then, Facebook and have both chosen to build data centers in Oregon instead of Washington.

The new tax exemption, introduced by Gregoire, applies to:
• Sales of server equipment that will be installed in a data center;
• Labor and service charges for installing servers, and to sales of power infrastructure equipment;
• Sales of power infrastructure; and
• Labor and services for construction of power infrastructure.
To be eligible for the break, data centers have to be at least 100,000 square feet, and construction must begin between March 31, 2010, and July 1, 2011.

Data centers can be huge economic engines, of course, especially large-scale facilities like the ones that would fall under the new Washington incentives. Facebook, the owner of one of the data centers that moved to Oregon, has used the facility as a way to reach out to the local community, as well as tout its efforts to boost the economy in Prineville, Oregon, where the facility will be located.

But Washington and Oregon aren't the only states to hop on this trend. In March the state of Wyoming, seeking to siphon tech money away from neighboring states, signed into law a provision giving sales tax and use tax exemptions to data centers for equipment purchases of more than $2 million if the center has also made a $5 million capital investment in the state -- something that local data center owner-operator Green House Data has used as a draw for new customers.

These new incentives don't particularly incentivize energy efficiency or any other green elements for data centers -- although energy and hardware costs obviously provide plenty of incentive for data center owners to be as efficient as possible. But as the Facebook vs. Greenpeace kerfluffle pointed out, non-green data centers can be a bit of black eye, depending on who's doing the looking.

For that reason, perhaps the most significant -- and greenest -- data center legislation is the one from New York, which is offering up to $5 million to upgrade existing data centers to be more energy efficient. As David Chernicoff reports on his blog:

This is a pretty technology-aware program; it doesn't just focus on physical plant type upgrades, but also includes eligibility for common datacenter tasks such as virtualization, application management, and core server upgrades, as long as there will be a demonstrated improvement in the energy efficiency of the datacenter.

We'd love to see some sort of guidelines or incentives encouraging companies to build in green technologies like outside air cooling and recycled waste heat, but New York's guidelines are certainly a good start.

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