Indiana one step closer to tax breaks for data centers

The Indiana Senate on Monday approved a bill that would create tax incentives to attract data centers to the state.

The Senate passed the measure 46-0. The bill, authored by Rep. Ed Soliday, R-Valparaiso, must return to the House before it can head to Gov. Eric Holcomb because it was amended in the Senate. 

House Bill 1405, which passed the House 95-1 in February, would allow certain property, sales and use tax exemptions for the equipment used in data centers—large facilities that maintain computer servers that store significant amounts of data.

In order to receive the sales tax break on equipment purchased, the data center would have to be the result of a qualified investment ranging from $25 million to $150 million within five years, depending on the population of the county it is located in. The tax exemption, which would apply to the sales tax charged on the electricity used by the equipment, would be good for 25 years.

The data center would have to constructed using at least 75 percent of materials, services or labor from Indiana businesses in order to qualify for the tax break.

According to an analysis from the Legislative Services Agency, the sales tax exemption could be worth $1.75 million to $10.5 million. 

The Indiana Economic Development Corp. would have to approve the equipment before any tax breaks were granted. 

An amendment added into the legislation in the Senate would also make the tax exemption good for 50 years if the investment was more than $750 million.

Sen. Mark Messmer, R-Jasper, who carried the bill on the Senate side, said it would make Indiana one of the top five states for tax policy on data centers.

“This bill could be the biggest economic development bill this session,” Messmer said. 

Indiana currently does not have any major data centers, but advocates of the bill have argued that’s because a lack of tax incentives available for those types of facilities. In 2017, data-processing companies invested $32.2 billion in data center equipment, according to LSA.

“We have not been able to get these kinds of projects because our tax policy is not competitive,” Messmer said.

A $40 million facility known as the Digital Crossroads Lake Michigan has been proposed in northwest Indiana, but developers have not broken ground yet. Representatives from Digital Crossroads told lawmakers earlier this year that they hope to expand the project from 100,000 square feet to 400,000 square feet, which would make it a $200 million investment.

The bill would also allow local communities to grant property tax exemptions for data centers.

The Indiana Chamber of Commerce supports the bill, contending that even though data centers don’t have high employment numbers, they do tend to be high-cost investments and can attract other technology companies to the area. 

The legislation was a top priority this year for the Indiana Technology and Innovation Association, which represents more than 100 tech companies throughout the state. 

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