Five Southwest Virginia leaders announced this week made a joint agreement to set what will be Virginia’s lowest regional property tax rate on data center equipment, in a bid to draw in business which currently clusters in Northern counties like Loudoun and Henrico.

The localities comprising the Lonesome Pine Regional Industrial Facilities Authority — Dickenson, Lee, Scott and Wise counties and the City of Norton — have agreed to each set a tax rate of 24 cents per $100 on data center equipment.

“The Lonesome Pine RIFA is pleased that its member localities have worked collaboratively to create a unified, equitable and competitive approach to the attraction of data centers to our region,” said Mitzi Sykes, Chair of the Lonesome Pine RIFA. “Our localities working in sync on this initiative to attract significant capital investment will reap positive benefits to our entire region as we stand stronger together.”

By comparison, Henrico County reduced its data center equipment tax rate to 40 cents on every $100 in March 2017 in order to lure Facebook to construct a facility in the county’s White Oak Technology Park. At the time this meant Henrico had the lowest such tax in the State.

“I am proud of the Lonesome Pine RIFA localities for taking the data center industry’s lead by implementing this critical competitiveness tool for our region,” state Sen. Todd Pillion, R-Abingdon, said in the statement. “This five-month effort to implement InvestSWVA’s Project Oasis recommendation demonstrates our commitment to making Southwest Virginia a prime location for data centers.”

SW Virginia wants Northern Virginia’s data center milkshake

There has been a push to drive more data center investment towards the southern part of Virginia as the area tries to move on from its coal mining history and claim a slice of the data center boom that have been going in the north of the state for years.

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, according to a North American Data Centers report. A 2019 study by the Joint Legislative Audit and Review Commission found that 69 percent of data center investment between 2009–2018 went into Northern Virginia, with 15 percent going into Richmond, and 10 percent to Southside.

Within Northern Virginia, the epicenter is Ashburn in the county of Loudoun, close to Dulles International Airport.

“Local tax rates are extremely important considerations for site selection due to the capital cost of equipment and frequency of server replacement,” said Delegate Terry Kilgore (R - Gate City). “We are sending the message to the data center industry that Southwest Virginia is aggressively pursuing investments that will be game-changers for our region.”

According to a 2020 report by InvestSWVA, a group decided to attract more business to the region, 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 additional sites could be suitable for a smaller data center of up to 10MW.

“Swift action over five months demonstrates Southwest Virginia’s commitment to following InvestSWVA’s playbook to secure new data center investment in the region,” said Will Payne, Managing Partner of Coalfield Strategies and project lead for InvestSWVA. “Project Oasis is a data-informed and industry-backed tool highlighting Southwest Virginia’s competitive advantages.”

Data center tax benefit bills making their way through Virginia Senate

Meanwhile, at State level, three proposed amendments that would reduce the thresholds for data centers to qualify for tax exemption in the state are close to being signed into law by the Senate.

Under current regulations, Virginia offers retail sales and use tax exemption for projects that involve $150 million of new capital investment and create 50 new jobs located at the data center, with a lower threshold of 25 jobs for data centers in ‘distressed’ areas with higher than average unemployment.

Two bills – SB 1423 and HB 2273 – would lower the job requirements for companies building in ‘economically distressed’ areas of high unemployment, with the latter also significantly lowering the required capital investment required to qualify. A third – SB 1425 – would reduce job creation requirements if the data center operator has already been granted tax exemption on a previous facility. All three have passed votes are currently awaiting votes in the Finance and Appropriations Committee.

Virginia as a whole already offers generous terms to data center companies. In 2020, the commonwealth beat its own record for data center tax exemptions, distributing more than $110m and beating its previous record of $92.2 million set in 2019.

There is also competition elsewhere in the US to attract digital infrastructure investment through tax incentives; the Connecticut Senate passed a new bill that provides sales tax and property tax exemptions, while Wyoming voted down a bill that would have repealed tax benefits for data centers in the state.