Do the math: Data center tax revenue promises don’t deliver in Stafford County

Big tech companies and real estate speculators use tax revenue as one of their main inducements to attract data centers. Virginia and many municipalities created tax incentives for data centers in 2010. However, when those tax exemptions continue beyond their usefulness, leaders should scrutinize these giveaways.

The state tax exemption has ballooned to $1.9 billion per year and is rising, making it the largest exemption in Virginia for any industry. Keeping or eliminating it became a flashpoint this session and remains the main dispute holding up the state budget, due by July 1. With approximately 3.36 million households in Commonwealth, this subsidy represents an annual cost of $565 per household. If Virginia continues to give data centers this subsidy, the state will have less money for schools, roads, water infrastructure, emergency services, and other public needs.

Stafford is one of the latest counties in the bullseye of data center development with approximately 40 million square feet of approved or proposed data center projects. Proponents point to the tax revenue these data centers will provide. But, when you add up all the tax breaks, data centers don’t pay as much as you think.

Virginia’s state-level sales and use tax exemption is only the first layer of subsidy. In Stafford County, Virginia's state-level sales and use tax exemption is stacked on three local tax incentives, further reducing what data centers pay.

Companies located within Stafford County’s “Technology Zone,” or Urban Services Area, can qualify for a generous five-year incentive package that offers up to a:

• 70 % rebate of personal property taxes for the first two years • 50 % rebate for the next 2 years • 30 % rebate for the fifth and final year • Business-based taxes can be completely rebated

Next there is an accelerated depreciation schedule in which the tax liability on data center equipment declines until that equipment is replaced. Their personal property tax due steps down over five years:

• 50 % in year 1 • 35 % in year 2 • 20 % in year 3 • 10 % in year 4 • 5 % in year 5 and beyond

Fourth is an extremely low Computer and Peripherals (C&P) tax rate of $1.25 per $100, compared to other counties where the rate is over $4.00: more than three times higher. The Stafford rate falls even lower when the favorable depreciation schedule is factored in. The advertised $1.25 tax rate is never collected because the C&P rate and depreciation table combine to reduce the taxes owed. Thus, Stafford’s rate actually opens at only 62.5 cents (not the $1.25 advertised). Then it slides downward annually to 6.25 cents in year 5 and beyond, as shown in the table above.

Amazon Web Services (AWS) also benefits from a generous Virginia Economic Development Partnership (VEDP) grant. Because of this grant, Stafford’s Economic Development Authority must rebate 60% of AWS’s taxes, up to $39.2 million. Worse, because the grant runs through 2051, AWS is insulated from any C&P rate increase the county might enact for the next quarter-century. At present, 81% of the approved data center buildings in Stafford (25 out of 31) receive these AWS tax rebates and incentives.

When all the exemptions and special tax rates are taken together, data centers pay pennies on the dollar in Stafford.

Some argue that Stafford should approve data centers comparing it to the significant tax revenue other counties generate. However, in nearby jurisdictions, such as Loudoun, Fairfax, and Prince William there are significant differences. Those counties impose much higher C&P taxes, apply different depreciation schedules, rarely offer comparable Technology Zone rebates, and levy Business, Professional, and Occupational License (BPOL) tax which Stafford does not. BPOL tax is based on a data center’s gross receipts. The amount of actual taxes generated pales in comparison to the damage to our natural surroundings, degradation of air and water quality, higher electricity costs, and reduced quality of life for residents.

It’s simple: Virginia residents are subsidizing multinational corporations while increasingly being forced to live next to heavy industrial facilities that degrade their quality of life and the historic character and desirability of the county. That would be troubling even if data centers were paying their fair share, but when the richest corporations in the world are paying pennies on the dollar, the injustice is even harder to justify.

It’s time to rethink the value of incentives and make sure we are fully informed about data centers before anything is decided. When you hear data center advocates telling you how great the tax revenue will be, do the math.

See article published the the Richmond Times-Dispatch here: https://richmond.com/opinion/column/article_c3e82921-a1d6-431a-ae78-45fc950eb86a.html