Despite promises such facilities would provide a significant economic boost, data centers that locate in West Virginia could avoid paying any state taxes, under a proposal making its way through the Legislature.
The tax credit under consideration would apply to warehouses and factories, but is being promoted specifically as a way to help ensure West Virginia lands data center projects that are being considered for locations across the country.
Department of Revenue officials cautioned that the bill could result in a decrease in general tax collections “of some significance,” but in a report to lawmakers, did not attempt a specific estimate of those losses.
In its own report, the West Virginia Center on Budget and Policy took a stab at providing such an estimate. They found the proposal could “potentially offset all state taxes” for data centers.
The proposal would allow businesses investing at least $2.5 million or creating 10 jobs to receive a tax credit, or reduction in their state tax bill for a decade. But job creation is not a requirement. And the bigger the investment, the larger the credit.
If the tax credit became law, it could cause a significant loss in tax money according to a report from Mark Muchow, a deputy revenue secretary. Muchow did not provide an estimate as to how much.
But his assessment found the bill would open the door for affiliates of a company to take advantage of the credit, too, which means a company with multiple subsidiaries could use the tax break repeatedly.
The tax credit is intended to bring in businesses, and its sponsor, Del. Geno Chiarelli, R-Monongalia, said the amount the state would bring in as a result would offset any losses.
Tax money from data centers was supposed to go toward reducing personal income tax and to help county coffers. Last week, the Morrisey administration touted the tax revenue stream.
Del. Chuck Horst, R-Berkeley, said he was concerned that data centers provide few jobs, so giving them a tax break makes them less economically valuable to the state.
“What is attractive about them is simply the amount of revenue they generate for the state,” Horst said. “And I have concerns that we’re going to give them tax breaks on that revenue, so we reduce the amount that the state would receive.”
West Virginia isn’t alone in looking into tax breaks for data centers.
Thirty-seven states provide tax breaks for these projects. Neighboring Virginia and Maryland, for example, have exempted data centers from paying sales tax.
But some states are rethinking their tax breaks due to concerns over water and power usage and public sentiment against the centers. Last year, Minnesota rolled back a sales tax exemption on electricity purchases for data centers. Maryland and Arizona are contemplating similar legislation.
And subsidies for data centers, or any large scale project, aren’t usually the determining factor in why a company locates to an area, according to John C. Mozena, president of The Center for Economic Accountability.
“Data centers will locate in West Virginia if it makes good business sense to do so, based on fundamental factors like electricity prices and reliability, site availability and infrastructure quality,” he said. “Nobody’s going to build a data center on a site that doesn’t make sense, and there aren’t enough sites that make sense that states need to bribe data center operators to build there.”
In Tucker County, residents have spent nearly a year organizing against a proposed data center. There, they have rallied against West Virginia’s original data center law, which stripped away local control over where data centers could be built and sucked up 70% of local taxes. Last week, the state Air Quality Board ruled against those residents in their challenge to a key environmental permit for the project.
Shaena Crossland, who owns Sister Witches Crafting Company in Davis, said news of the proposed tax break was disheartening.
“It’s definitely a slap in the face,” she said.
Public comments filed in the House of Delegates have largely rebuked the bill.
House Finance Chair Vernon Criss, R-Wood, said they are continuing to work on the bill in the committee.