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Committee OKs tax breaks to land data center, concerns still remain

Posted at 12:50 PM, Dec 02, 2015
and last updated 2015-12-02 18:23:06-05

LANSING, Mich. (AP/WXMI) — A legislative committee has approved tax breaks needed to ensure a major data center developer chooses Michigan for its first campus in the eastern United States.

Bills OK'd 8-5 Wednesday by the House Tax Policy Committee would exempt Nevada-based Switch and current Michigan data centers from sales, use and personal property taxes paid on servers and other equipment.

Switch plans to locate a massive data center campus near Grand Rapids, starting inside a pyramid-shaped building that once housed furniture maker Steelcase's research facility. The company says the project will be a $5 billion investment for the area that will help create upwards of 1,000 new jobs.

Switch says it will not come to Michigan without the tax incentives.

“This is corporate competition," Roger Martin, spokesperson for Switch, told FOX 17. “Michigan can choose to compete or not and that’s really what we’re talking about here.”

Fiscal analysis of the bills conducted by the state's non-partisan fiscal agencies in both the House and Senate concluded the bills "would reduce General Fund and School Aid Fund revenue as well as local unit revenue by an unknown, although potentially significant, amount."

The analysis from the Senate conlcuded the amount potentially lost would depend on the number of affected taxpayers and their specific characteristics, but likely would total at least $11.4 million per year.

Analysis from the House Fiscal Agency estimates even larger losses, citing an "immediate revenue reduction is estimated to fall between $20 million to $30 million on an annual basis."

There are currently about 40 data centers operating in Michigan that would become eligible for the exemptions, according to the report.

Rep. Ken Yonker, R-Caledonia, who was integral to introducing the legislation, said Switch and other data storage companies will still pay business and incomes taxes if the bills are passed. Yonker said the breaks only apply to sales tax the company would pay for the massive equipment needed to run the operation.

"If this was corporate welfare we’d be giving them money," Yonker said. “This is a tax structure that allows them to set up and be free of certain taxes, its not a handout to them.”

While supporters say Michigan must level the playing field and compete with other states for the emerging cloud computing industry, critics oppose such targeted tax breaks as unfair and question the budget impact.

The Michigan Chamber of Commerce publicly opposed the bills during testimony Wednesday, stating worry that the bills too closely mirror ones which supported the film tax credits that have largely come under fire for not providing the promised return on investment.

"We don't disagree that Switch might be a magnet, but is it a magnet for actual human beings or is it a magnet for tax-free equipment," Tricia Kinley, spokesperson for the Chamber, said during testimony.

"To be sure, lets all be positive that we're talking about the same thing; We're not talking about data processing with people and human beings, we're talking about server farms."

Kinley also said they'd prefer requirements be tied to the bills specifying the number of jobs Switch intends to create.

“There’s a lot of questions, a lot of flags about the cost per job and what the return on investment for Michigan would be," she told FOX 17. “We certainly want to see that building put to good use and would welcome Switch here, but at what cost to Michigan?

And that’s where the Legislature should slow down, do their homework, make sure the bills are drafted in a way that’s fair.”

The bills now move to the House floor for consideration. Similar bills are also advancing through the Senate.