For Data Center Clients, Tax Exemptions Can Mean Money in the Bank

April 15, 2014

Has your data center provider saved you money on your tax bill?

More specifically, has your data center provider helped you navigate your state’s tax program specific to these mission-critical operations?

If not, why not?

Clients appreciate guidance, partnership
More than a dozen states now have customized programs that provide exemptions from sales/use taxes on data center equipment, construction materials, and in some cases purchases of electricity and backup diesel fuel.

And you can bet that smart data center providers in these states are boning up on local tax laws so they can make sure their clients are getting every penny they can out of these programs.

For example, in a recent Arizona-based deal for a rising star in the cloud compute arena with multiple locations across the country, Digital Realty helped its client save thousands of dollars per cabinet, with a significant number of cabinets in play. That represented a savings in the tens of thousands of dollars-not chump change by any standard but especially not for a young business.

Thrilled at the prospect of putting this money to work in other ways, the client’s chief operating officer sent a note to the folks at Digital Realty, thanking them for the guidance and the partnership.

Data center destinations
Look around. The cloud is everywhere. Consumers are banking in the cloud, gamers are gaming in the cloud and students are doing homework in the cloud. The cloud isn't going anywhere.

And guess what? The cloud lives in data centers. And the states that have already recognized this fact are doing their best to attract industry players of all shapes and sizes.

Hence, changes in how data center providers and clients are taxed and other financial benefits have become popular selling points for states looking to build reputations as data center destinations, and to compete with neighboring states looking to do the same.

The growing popularity of tax programs, such as sales/use tax exemptions, is now prompting the traditional data center hubs—Virginia and Texas come to mind—to adapt their tax frameworks to attract even more of these high-tech facilities.

Long-term tax revenue generation
States are generating substantial, long-term tax revenue from data centers.

These data center sales/use tax exemption programs are aiming to encourage investment and job creation within a state by reducing the costs involved in siting, expanding and operating a particular project, while at the same time generating additional tax revenue from the project, benefiting the state as a whole.

And the benefits to data center clients are clear, too: Money in the bank!

~ Jim Grice is a partner with the law firm of Lathrop & Gage LLP, chairing the firm’s practice group focused on data centers, telecommunications and technology

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