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Georgia Senate Moves to Suspend Data Center Tax Breaks

A state Senate committee backed legislation — which has already passed the House — to suspend sales tax breaks on new data centers that lawmakers say aren’t giving the state financial return on its investment.

Data center
(TNS) — A state Senate committee last week backed legislation — which has already passed the House — to suspend sales tax breaks on new data centers that lawmakers say aren’t giving the state much financial return on its multimillion-dollar investment.

Local governments are benefiting greatly, and some senators said they should consider increasing their own tax breaks to attract data centers if they want to entice more of them to build in their communities.

“The return on investment is not there for the state, it is for the local government,” said Sen. John Albers, R-Roswell, vice chairman of the Senate Finance Committee. “We are responsible for state tax dollars, and every time we don’t get a dollar back or more (from a tax break), that means every other Georgian and every other business pays for that.”

The committee voted Friday to pass House Bill 1192, which would suspend the tax break for new data centers while lawmakers study whether to continue or modify the incentive. The House last month passed the bill in a 96-71 vote. It now heads to the full Senate for consideration.

The sales tax break for data centers has only fairly recently become a target for elimination.

Since 2018, Georgia has provided lucrative tax savings for large or “hyperscale” data centers. The law provides tax breaks for the equipment housed within these facilities, mirroring a Virginia law that dozens of other states have copied.

Data center servers run 24/7, requiring huge amounts of electricity to keep them powered. As the facilities flock to Georgia, the state’s largest utility — Georgia Power — has said it needs to significantly boost the capacity of its system to keep up with the demand.

Georgia Power has asked state regulators to allow it to add almost 3,400 megawatts of new capacity, equal to about three times the maximum output of one of the new nuclear reactors at Plant Vogtle. Company executives have testified that data centers are responsible for about 80% of its expected new load.

Microsoft, which operates multiple data centers in Georgia, said recently that incentives are an important factor it considers when planning new facilities. However, tax breaks are just one of 35 criteria it takes into account, a company spokesperson said.

Despite their mammoth size, data centers employ only a few dozen workers — they’re storage centers for computer servers, not people.

Josh Levi, president of the Data Center Coalition, told the committee that the state has seen significant investment in data centers in Georgia since lawmakers re-upped the tax break in 2022.

“Suspending the program sends the wrong message to all capital-intensive businesses for which certainty and predictability is essential,” Levi said.

Local officials in counties with data centers said they have generated thousands of construction jobs and provided a windfall in property taxes.

“It’s a significant piece of balancing that tax digest, taking the ad valorem taxes off the property owners, the residents,” said Niki Vanderslice, president and CEO of the Fayette County Development Authority.

Sen. Jason Esteves, D-Atlanta, a member of the committee, questioned why the state would suspend the tax break rather than let potential investors know it would be phased out over time if the goal was to eliminate it.

“While we are pausing, we’re essentially telling investors that have made soft commitments that this is it,” he said. “I doubt they are going to want to invest in something that is being suspended and possibly be on the chopping block.”

But Sen. Greg Dolezal, R-Cumming, another member of the committee, told local officials they could use local sales taxes to replace the loss of state sales tax breaks if they want to provide more incentives to attract data centers.

“Why do we have to pay for it, why can’t you pay for it?” he asked.

Many counties offer other incentives to attract the data centers, local officials said.

It’s unclear how much the suspension would save the state and how much it costs now. Figures thrown out in the meeting Friday ranged from $10 million upward to $80 million-$100 million.

Senate Finance Chairman Chuck Hufstetler, R-Rome, said companies with data centers already being built or who are in the process of having their tax breaks certified by the state would still be eligible for the incentives.

“I think there are ways to fix this with local help,” Hufstetler said. “We have a potential energy crisis, and we have an incentive we are not doing well on as a state. I agree the locals are doing very well on it. If I was still a county commissioner like I was, I’d be wanting one of these (data centers), no doubt.”

Lawmakers who spent last year studying the effectiveness of numerous business tax breaks remain skeptical of claims from supporters that without them, companies wouldn’t be building or doing business in Georgia. House Ways and Means Chairman Shaw Blackmon, R-Bonaire, said lawmakers made it easier for data centers to get the tax breaks in rural Georgia in hopes of spurring job growth.

The General Assembly’s leadership has largely been made up of rural lawmakers for decades.

“The threshold (to get a tax break) is much lower in rural Georgia,” Blackmon said, “yet we have not seen any data centers go up.”

© 2024 The Atlanta Journal-Constitution. Distributed by Tribune Content Agency, LLC.