Washington State publishes Paper why Data Center companies head to other States

Microsoft kicked off the public attention of Washington State as a place to build data centers. The government officials then tried to tax the data center companies as an industry assuming the low power prices were worth it. Finally after 7 years of little activity in Washington the Department of Commerce published a report stating what we all knew, Washington state taxes made it more expensive than neighboring states.

The report is here. The conclusions are here.

 Data center growth in rural Washington is at the lower end of the growth rate experienced by other major competitive markets. The competition among states for data center projects has increased dramatically and, if the state desires to attract more projects, Washington should improve its promotional strategy for this industry segment and reexamine the competitiveness of its overall incentives strategy.
 Urban Washington counties that do not have access to sales and use tax exemptions for data centers are at a competitive disadvantage to other urban data center markets such as Portland that either do not have sales tax or that offer tax incentives that abate the sales tax.

A comparison to Hillsboro is made.

All of Hillsboro’s data centers are located in its “enterprise zone,” which was earmarked by the city to provide property tax abatements to firms that locate there. In addition, Oregon has no sales tax at either the state or local level, and the property tax rate in Hillsboro is currently $16.75 per $1,000 of assessed value. Locating in the enterprise zone caps taxing the property to the pre-development assessed value for nearly five years. These tax benefits draw in big players. Last year, DuPont Fabros bought up 47 acres in Hillsboro for what will be Oregon’s largest urban server farm, a 500,000 ft2 facility that will require 50 MW of power, half of which will be for Microsoft and Facebook’s cloud storage.143
We interviewed Valerie Okada, a Business Development Coordinator at the City of Hillsboro’s Economic Development Department. In pitching Hillsboro to us, she cited the quality of its fiber network, noting there are nine providers and four cable land stations that terminate in Hillsboro. Okada also mentioned the high reliability of its electric substations that do not have the dips and outages other cities have because their infrastructure is up to semiconductor industry standards due to Intel’s long presence since they days when they were just a small town. But it is doubtful these features are significantly better than Seattle.
It is the enterprise zones that really incentivize datacenters to locate to Oregon. Oregon’s largest urban server farm in operation today, an 11.9 MW, 180,000 ft2 facility run by Infomart saves $769,000 a year
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Media needs to learn how to calculate tax breaks for data centers

I saw this article on Salon about technology companies getting subsidies for building things like data centers in a city. Apple's data center in Ohio is the example in this article.

For agreeing to build a data center in Waukee, Apple received $213 million in tax breaks for 50 permanent jobs — that’s $4.3 million per worker — and even bigger subsidies are on offer for factories. Tesla received $1.25 billion in assistance to build its gigafactory in Nevada, and Foxconn is poised to get a $3 billion incentive for its proposed Wisconsin factory, despite a legislative analysis showing the state won’t break even for at least 25 years.

Having worked with tax teams who negotiate details like property tax let's review what the media doesn't cover. What is property tax?

The property tax is the main tax supporting local education, police/fire protection, local governments, some free medical services and most of other local infrastructure.
— https://en.wikipedia.org/wiki/Property_tax#United_States

Let's do a simple number 1% property tax on a small data center. :) $250 million. So the annual tax bill is $2.5 mil. One of the main use of the property tax is for education. With 50 employees that is $50,000 per employee. What is out of whack is the assumption that the cost of the property equates to a tax burden. This leads to a discussion of what is reasonable amount of property tax to support 50 employees.

Let's jump to sales tax. It is easy for a $250 million data center spend $250 million on IT equipment that it replaces every 3 years. Let's use a low sales tax rate of 5% for $12.5 million sales tax. Almost every capital equipment intensive industry gets exemptions on sales tax to equip a facility. Yet, IT equipment all too often is not considered capital equipment to be exempt from sales tax and special legislation is required.

If there was no data center in an area there would be no property and sales tax on a data center. With a data center with 50 people and $250million of IT equipment in $250 million building what are fair taxes?  A $213 million tax break enrages people, but without these breaks there is no way a data center would be built. What few cover is the incremental taxes that do come in from a data center. Property taxes will be paid and sales taxes on other items.

This is why the government's are willing to change tax structures for data centers in their location. To be fair based on the impact the data center with its few employees.

Barron's thought Twitter was too expensive in Nov 2013, Feb 2014, and May 2014

Twitter has a second day of decreasing stock price.


Some are surprised the stock is falling.  Barron’s has been saying for months that TWTR was too expensive.  Twitter is important for so many things, but that doesn’t mean it shouldn’t its stock shouldn’t have a fair market value.

  • Why Twitter Could Fall Further - Barron's

    Feb 8, 2014 - Barron's was bullish on Twitter prior to last November's initial public offering, but we warned that investors shouldn't pay more than $30 for the ...
  • Beat-Up Twitter Is Still Too Rich - Barron's

    4 days ago - Even after a 47% drop from its late-December high of $74, Twitter looks ...Barron's wrote negative follow-ups ("Twitter: Priciest Stock Since the ...
  • The Case for Selling Twitter - Barron's

    Nov 15, 2013 - The social-media company's big spending in infrastructure and global expansion will undercut its stock, writes S&P Capital IQ.

Lessons to learn from HP's acquisition of Autonomy

HP's bungled acquisition of Autonomy is all over the news.  Here is an analysis that shares some insight.  The perspective is well explain in the last paragraph.

As an ex-auditor, I realize that while a lot of the focus will be on finding people to blame for this, I think that more focus should be put on making sure this kind of thing doesn’t happen again at HP or to you. We can learn from the mistakes of others. HP has been an excellent teacher, though I think it is well past time it passed this responsibility on to another firm.  

The author highlights the flaws in the acquisition process.

Wrapping Up: Acquisition Method

Now that the mistake is in HP’s history, process changes have been put into place to assure this same mistake is less likely to occur, and the CEOs who were responsible are both gone from the acquired and acquiring companies. However, one final lesson stands out: HP’s acquisitions have been going very badly and so had Autonomy’s. Both firms appear to have used the integration merger process, which appears to have a better than 80 percent failure rate.  

While this showcases an ongoing problem of doing things the way they have always been done, regardless of how badly they work out, it should also showcase that firms like EMC and Dell have been following a very different path far more successfully of late and that it is their example, not the historical failed process, that should now be followed.  

Keep this in mind when you think about acquisitions in the data center ecosystem.