VA provides data centres $124.5M USD in 2021 tax breaks

Virginia offered data centres $124.5 million USD in tax breaks for 2021. This number represents an increase of over $14 million from the previous year – and almost twice as much as in 2017.

The amount of tax rebates offered by the state has been increasing steadily over the past several years – from $65.2 million in 2017, to $92.2 million in 2019, to $124.5 million last year. If a data centre meets certain requirements it is exempt from retail sales and use tax on computer equipment. These requirements include $150 million in capital investment, the creation of at least 50 new jobs, and provision of wages paid at 150% of the prevailing annual wage in the region.

However, last March Virginia changed the minimum exemptions required for data centres to qualify for exemption, to promote data centre investment in the less affluent parts of the state. Under the new provisions, a data centre in a ‘distressed locality’ requires only a $70 million investment, and 10 total jobs – although the wages for those jobs must still be paid at 150% of the prevailing local average.

Tax exemptions and abatements help to make certain locations more attractive than others when a data centre owner / operator is choosing a location for investment. 19 different U.S. states offer property tax abatement to data centres and 11 that provide a waiver of taxes for equipment and hardware.

One of the problems with offering tax incentives to data centres is that the tax benefits are substantial and often ongoing for years or even decades – while the number of permanent jobs that are added to communities as a result can be quite small.

According to a report published in Forbes, big tech companies have leveraged tax abatements, refunds, and credits to gain over $800 million for their data centres; averaging almost $1 million per permanent job created. The current practice pits local municipalities in competition against one another to be chosen as the next high-profile data centre site, and one of the ways that they compete is by offering tax incentives. The issue is that these businesses get significant benefits while adding few jobs to the local economy, consuming outsized amounts of natural resources, and putting enormous pressure on the power grid.