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.

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.