Virginia has officially reduced the threshold for which data center companies will need to qualify for tax exemption in the state.
Two identical bills – House Bill 2273 and Senate Bill 1423 – will see the state reduce the number of jobs a data center must create and the amount of capital investment in order to qualify for sales and use tax exemption were signed by Governor Ralph Northam this week.
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Fewer jobs and investment needed for data centers in distressed areas of Virginia
Under previous regulations, Virginia offered retail sales and use tax exemption (DCRSUT Exemption) for projects that involve $150 million of new capital investment and create 50 new jobs located at the data center associated with the operation or maintenance of the data center, with a lower threshold of 25 jobs for data centers in ‘distressed’ areas with higher than average unemployment.
The new bills – House Bill 2273 and Senate Bill 1423 – reduce the job creation requirement to qualify for the sales and use tax exemption for data centers in a distressed locality from 25 to 10 jobs and reduces the required capital investment from $150 million to $70 million.
They also redefine criteria used to identify a ‘distressed locality’ as an area with unemployment and poverty rates greater than the statewide rates, and require companies to submit an annual report to the Virginia Economic Development Partnership Authority detailing employment levels, capital investments, average annual wages, qualifying expenses, tax benefit, and other information. Both come into effect from August 1, 2021.
The two bills originally had differing requirements around job creation and investment when first introduced but have since met in the middle to match wording. SB 1423, introduced by Sen. Jeremy McPike (D-Dale City) with support from Sen. Todd E. Pillion (R-Abingdon), originally proposed to reduce the job creation threshold to 15 jobs, while HB 2273, introduced to the House of Delegates by Del. Will Morefield (R-North Tazewell) with support from Del. Terry Kilgore (R-Gate City) wanted to lower the job requirement to just four jobs and reduce the $150 million capital investment down to $1.9 million.
A third bill (SB 1425), introduced earlier in the year by Sen. Frank Ruff (R-Clarksville) and again supported by Sen. Pillion, that would reduce the job requirement from 50 to 25 for any subsequent data center operators locate in any Virginia locality if the company already has been granted tax exemption on a previous facility, has seemingly stalled.
Southern Virginia wants its share of data centers
Virginia as a whole already offers generous terms to data center companies, but Southern Virginia has been making a concerted effort to draw more investment to the area and away from the north. Northern Virginia is the main data center hub for the whole world, but the benefits are concentrated in a few counties. More than 500MW of colocation capacity was leased in the area last year, and a 2019 study found that just 10 percent of data center investment in the state over the last 10 years had gone to the south.
Southern Virginia has traditionally been a coal-mining hub and is looking to draw new investment and job creation with cheap land and low taxes. Earlier this month Five Southwest Virginia leaders made a joint agreement to set the state's lowest regional property tax rate on data center equipment.
A 2020 report by InvestSWVA – a group dedicated to attracting more business to the area – Southwest Virginia is well-positioned for data centers due to available and cheap land and geothermal cooling. The report said six sites met the general criteria for 36MW hyperscale data centers, and four more could be suitable for smaller facilities of up to 10MW.