Microsoft & Yahoo Join Effort to Keep Sales Tax Exemption for Washington Data Centers covers the interesting situation where Microsoft and Yahoo are together in asking for Sales Tax Exemption for Data Centers in Eastern Washington.

"States such as Iowa and others have come on board with very attractive tax incentive packages to get data centers to locate in their communities," DeLee Shoemaker, Microsoft's state government affairs director, told the Seattle Post-Intelligencer. "Washington state is no longer competitive for this type of business."

In response, Gov. Chris Gregoire requested an exemption which would eliminate half the state sales tax on replacement equipment for the mammoth server farms. The exemption wouldn't affect this year's state budget, but would cost about $32 million in the next two-year period and $43 million in the 2011 to 2013 period.

Microsoft has lobbied for a 100 percent sales tax exemption.

Critics said Eastern Washington's low-cost land and clean power sources already make it an attractive location for data centers, without a tax break.

I just got back from a trip to Columbia Basin (home of the new data center construction). The critics have no idea how competitive the data center site selection is, and how this sends a message to data center operators that the state of Washington is out to tax data centers.

The State hit Yahoo with the 7.9 state sales tax right after Yahoo opened their new data center.