Rep. Ed DeLaney: Tax incentives for data farms growing like weeds

In 2019, when data farms were merely the kernel of an idea to the general public, the Indiana General Assembly passed House Enrolled Act 1405, providing for large, long-term sales tax credits for equipment installed in data farms.

We bought into the idea of being early adopters of tax incentives designed to attract a burgeoning industry to Indiana. This was also a time when we had hopes for growth in wind and solar as possible alternative sources for reasonably priced energy.

Well, much has changed since 2019. Our residential electric monthly bills are now an average of $130 a month as of 2022, up from $70 a month in 2004. I also have escalating concerns with the continued opposition to lower costs of wind and solar energy in Washington and at the Statehouse.

All this led me to vote against the latest “upgrade” to these incentives found in this year’s House Bill 1601. As I was drafting this article, the head of the EPA visited Indiana to announce a proposal to end environmental protections and boost coal production—a high-cost alternative to natural gas, wind and solar.

HEA 1405 got the ball rolling in 2019. It provided an exception from sales taxes for equipment installed and electricity used in operating data centers. The 2024 Indiana Tax Incentives Review published by legislative staff, based on limited data, indicates that Indiana might be exempting up to $13.2 billion of equipment. The limitations of that report make it hard to be certain of what we face. At least we are not alone: The same report shows that 32 states, including all of our neighbors, offer a sales tax exemption.

Eight of these states, including Indiana, also allow for local units of government to make property tax exemptions. These combined breaks seem remarkable for what is still a new industry with an uncertain timeline. The uncertainty is compounded since some of our incentives could last to 2058 or even 2073.

House Enrolled Act 1601 was passed this year. It reaffirmed the generous sales tax exemptions first passed in 2019. It then added a category of equipment eligible to get this very positive treatment. This was for facilities providing “quantum computing research, advanced computing, and defense infrastructure network that is connected by quantum safe fiber network equipment … at or related to a qualified military installation.”

This seemed to be aimed at some particular project. It also seems to equate fiber networks with data centers. I assume data centers can already be served by fiber optic networks. Where is the novelty here? I tried to get the total of sales tax exemptions under this law limited to $100 million, but my amendment was rejected. As a result, we really have no solid idea of how much tax revenue we will forgo.

I will be calling for a thorough review of these incentives. I am not confident that the administration and its Indiana Economic Development Corp. are intent on protecting our tax revenue. More important, I’m very concerned about the risk of transferring costs for these data centers from their owners to residential consumers of electricity.

There is a ray of light on that front. Indiana Michigan Power entered into an agreement involving the office of the Indiana Utility Consumer Council and the Citizens Action Coalition that provides some protection against these potential cost transfers at data centers in its territory. The General Assembly needs to ensure that similar protections are provided statewide. If not, data centers will sprout from hopes and dreams to weeds in the fields of Indiana.•

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DeLaney, an Indianapolis attorney, is a Democrat representing the 86th District in the Indiana House of Representatives. Send comments to [email protected].

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