Governor Bob McDonnell signs new legislation to attract data centers to Virginia, accompanied by NVTC President Bobbie Kilberg (seated at right) and representatives from member firms.
Virginia Governor Bob McDonnell gets technology. He also gets the importance data centers and technology firms will play in the future of the commonwealth’s economy.
In the latest in a series of moves to attract technology firms and investment into the state, McDonnell signed a bill Tuesday that expands a data center sales tax exemption. He also signed bills extending Virginia’s telework tax credits and expanded capital gains tax exemptions for investors in qualified technology startups.
The bill expanding sales tax exemptions for data centers is already having an impact.
It was a critical factor in DuPont Fabros Technology’s decision to invest $100 million in expanding its Ashburn, Va., facility, said Hossein Fateh, president and CEO of the company. Construction on the project will begin a few weeks, he said.
The signed legislation is also considered instrumental in Facebook’s continued investment in the state, which could potentially reach hundreds of millions of dollars, said Will Castleberry, state public policy director for Facebook.
According to Virginia’s Secretary of Technology’s Cyber Report, released in January, Virginia currently has over 50 data centers throughout the state. Over the next ten years the secretary expects an additional 20 to be built. Amazon, Google and Microsoft all have data centers in the state.
“The bills signed today will help make sure that when companies look for a place to start or relocate their technology start-up or data center that Virginia will be at the top of their list. Virginia already has the highest concentration of high-tech workers in the nation and these bills will help bring more of these good jobs to our skilled workforce,” said McDonnell.
Northern Virginia’s data center real estate inventory, primarily in Ashburn, is second in size only to the greater New York/New Jersey market in the Eastern United States, reported Robert Burke in a September 2011 Virginia Business article.
Aside from Ashburn, other data center sites in Virginia include Reston, Tyson’s Corner, Prince William County and Richmond, in part because of their proximity to the federal government.
“We are the fastest-growing, and poised to be the largest, data center cluster in the eastern United States,” said Buddy Rizer, business development officer with the Loudoun County Department of Economic Development in the article. Loudoun County currently has about 4 million square feet of data-center space and Rizer predicts that number will grow to 10 million over the next ten years.
Government agencies and the private sector already rely heavily on data centers and both sectors are anticipated to expand their usage of offsite data storage. Last year the federal government announced it would close and consolidate hundreds of data centers to save $3 billion in electrical and operating costs. However the rise in the use of cloud computing is fueling demand for a new generation of highly efficient data centers.
Sales and property taxes for data centers are significant and play a critical role in site selection, said John Lenio, economist and managing director of CBRE’s Economic Incentives Group in a February 2011 CBRE report.
As an example, Lenio said a $100 million data center in Texas conservatively could have a $44 million tax bill over a ten year period. The tax impact increases as the size of the data center increases as well, with a $500 million facility having $110 million in taxes over ten years under the same scenario. In this scenario, lowering sales taxes by 1% saves a data center $1 million for every $100 million spent. Over the course of ten years, reducing property taxes by $1 million saves the company $12 million for every $100 million in capital investment.
In fact, low or no property or sales taxes offer the most potential for long-term cost savings for data center operators, said Lenio, in a July 2011 article in Site Selection magazine.
The sales tax exemption expansion bill (HB 216 / S 112), sponsored by Delegate Barbara Comstock and Sens. Mark Herring and Ryan McDougle, expands the sales and use tax exemption for the purchase or lease of computer equipment or enabling software by data centers by extending it to tenants of the centers. It includes jobs created not only by the data center operator but also by the tenants of the data center.
HB 1013 (Comstock)/SB226 (Herring) extends exemptions from Virginia’s capital gains tax for investors in qualified technology startups from June 30, 2013, to June 30, 2015. HB 551 (Comstock)/SB 238 (Herring) extends the telework expenses tax credit for employers through December 31, 2016.
Last winter Southern Business and Development named three Virginia locations to its Ten Best Data Center Sites in the South list. An added benefit for data centers is that the state has the lowest commercial electricity rates among the South Atlantic states, noted Virginia’s cyber report.
The bill signing ceremony was co-hosted by the Northern Virginia Technology Council, a membership and trade association representing about 200,000 employees in the region, including those in government agencies. NVTC, which has become the largest technology council in the nation, actively advocated for the sales tax exemption.