How states are competing in the data center gold rush
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What is driving the competition among states for data centers?
States are lining up to give tax cuts to data centers. From American Public Media, this is Marketplace Tech. I'm Megan McCarty Carino.
Tech giants are estimated to have spent almost $400 billion in capital expenditures this year, mostly to build data centers for AI. Just one of these massive facilities can have a price tag in the billions of dollars, and many states want in on that spending spree. 37 states have some sort of incentive program to attract data centers with the hope of bringing a boost to their local economies. They're giving away hundreds of millions in tax exemptions, according to the National Conference of State Legislatures. Many of these policies predated the AI boom, but the current data center frenzy has intensified the competition and concerns about whether states will see a payoff. We spoke with Nicholas Miller, policy associate at NCSL, to learn more.
These tax incentives are a sort of broad term, and it covers a lot of different sort of favorable tax treatments that states are offering to data centers.
How do tax incentives for data centers vary across states?
So sales and use tax in 37 states. Then in at least 11 states, that sales tax exemption actually extends to the electricity as well. I think that's becoming a hotter topic about data centers in general. Then in five states, we also see some sort of a property tax abatement. And those can be a little more complicated. But in general, it's going to be a partial property tax abatement. So no state is completely forgiving the property taxes that these data centers would play. And we know from a few states that have evaluated those incentives that they can add up to be quite a lot of money. So in Virginia, in fiscal year 2023, it was about $980 million in tax incentives awarded to data centers.
And so among those, which are sort of the most attractive and what states are sort of going the hardest on this?
What are the economic benefits of data centers for local communities?
The upfront incentives, that incentive for the computers and some states offer incentives for the construction of the data center as well. so you're not going to pay a sales tax on even the concrete for the walls of the data center. I think that electricity exemption is pretty important as well because once these data centers are operational, they have really tremendous energy needs. In terms of the states that are going the hardest, it varies from state to state the exact makeup of the incentive. I think we know the most data centers are in Virginia, Texas, and California. But in some of the states maybe where there was not so much data center construction previously, they're leaning more into different strategies.
So we've seen in Mississippi, the state is actually investing grants in workforce training to upskill local residents to work at the data centers even. So beyond just tax incentives, I think some of the states that were not previously these data center destinations are looking to get in on the action.
And so what do states get out of these deals? What are they asking for in return?
I think one of the big goals of these incentives are jobs. We see that very often that these data centers will hopefully bring jobs to local communities. And I think evaluations of these incentives have found that yes, they do create jobs, but mostly at the beginning when the data center is being constructed. There are a lot of construction workers, a lot of contractors, and then once the data centers are actually operational, It is fewer people who are working there, often on the order of 20 or 50.
How do states ensure job creation through data center incentives?
And then capital is another big component of that. These data centers can cost hundreds of millions or billions of dollars. And I think states want that to sort of come to their communities. And especially when the data centers are being built, oftentimes they are hiring local firms. So a local construction company, again, a local concrete manufacturer. And if those billions of dollars are sort of benefiting local industries, I think that's very attractive. And then a benefit that we hear less about but I think actually might be the most significant in the long term are property taxes.
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Chapters
7 chapters
1
What is driving the competition among states for data centers?
0:01–1:21
2
How do tax incentives for data centers vary across states?
1:21–2:13
3
What are the economic benefits of data centers for local communities?
2:13–3:57
4
How do states ensure job creation through data center incentives?
3:57–5:19
5
What are the potential downsides of data center tax incentives?
5:19–6:55
6
How are states addressing energy consumption by data centers?
6:55–8:51
7
What future trends can we expect in data center incentives?
8:51–11:23