House OKs tax break for data centers

When Facebook was looking for a site to build a new $450 million data center – to store all of your online photos and status updates – it needed cheap land and cheap power, two things South Carolina has in abundance.

But the new data center is not in South Carolina. It is in Forest City, N.C., primarily – lawmakers say – for one reason: North Carolina does not tax Facebook’s electric bill.

Now, however, S.C. lawmakers say they are close to fixing that competitive disadvantage.

The House and the Senate have passed a bill that would exempt data centers from sales taxes on electricity, but only if the center invests at least $50 million and hires at least 25 people. The bill also would exempt a data center’s computer equipment, hardware and software purchases from the state’s sales tax.

The result, lawmakers hope, is companies like Facebook, Apple and Google will build S.C. data centers, which some view as the successor to the state’s disappearing textile industry and a symbol of the changing economy.

“Our economy has changed and become so dependent on the things that are in ‘the cloud,’ not necessarily bricks and mortar,” said attorney Ray Jones, a board member for the S.C. Economic Developers Association. “Data centers have become very important because they are the cloud.”

Since 2007, when North Carolina exempted data centers from some sales and use taxes, eight companies – including American Express, Apple, AT&T, Facebook and Google – have spent or announced plans to spend more than $3 billion on data center projects in that state.

North Carolina has been so successful that Virginia, considered one of the data-center capitals of the country, passed its own set of incentives in 2009 just to compete with the Tar Heel State, according to Rich Miller, who tracks the industry for the website Data Center Knowledge.

South Carolina has just one major data center, Google, in Berkeley County.

“Western North Carolina has done very well because they have the electrical infrastructure in place to support textile mills – another industry that used to be there but has largely left,” Miller said. “If (South Carolina) wants to attract data centers, they will have to level the playing field with the states around them.”

South Carolina shares that textile mill infrastructure, particularly in the Upstate – which is why state Rep. Phyllis Henderson, R-Greenville, is one of the bill’s primary sponsors.

“There is a big (data center) the state feels confident we can land if we get this bill finished up – a big one that is looking somewhere in the Upstate,” Henderson said, adding she did not know the specifics. “The main piece of this legislation is because of North Carolina. We were just losing projects right and left to them.”

Kevin Landmesser, vice president of the Greenville Area Development Corp., said he was not aware of a pending deal, but added, “Consultants I have met with earlier this year outside South Carolina have asked to be updated should (the bill) pass.”

The S.C. House amended the data-center bill Tuesday so that it would apply to companies already in the state, as long as they meet the criteria. The bill now heads back to the state Senate. If senators approve it, it would go to Gov. Nikki Haley for her signature or veto.

The bill has had little opposition along its journey through the State House.

Some environmental groups object that data centers use large amounts of power. But a spokeswoman for the Southern Environmental Law Center – which tracks environmental issues in six Southern states, including South Carolina – said, “We are not tracking this particular aspect in any meaningful way.”

Tea Party activists who complain of government deciding economic winners and losers also have not focused on the bill, with its incentives aimed at one specific sector.

Data centers are large warehouses filled with computers that store information. Because so much of their operation is automated, they do not create lots of jobs. For example, the eight companies that have announced data centers in North Carolina have created an average of 50 jobs per location.

But those are typically high-paying jobs, averaging between $50,000 and $80,000 a year, according to the S.C. Economic Developers Association. And new centers also can boost construction spending, still reeling in South Carolina from the effects of the Great Recession.

Data centers are large, often in the hundreds of thousands of square feet. In 2011, companies spent $10 billion constructing new data centers, according to the state Economic Developers’ Association.

They also are popular in political circles because of their name recognition.

“Lots of times, governors, in particular, are very fond of these projects,” Miller said. “The symbolism of being able to introduce an Apple or Google or Facebook data center, these are the companies people think of when you talk about the internet and technology.”

Gov. Haley has staked her political career on recruiting jobs to South Carolina, announcing expansions by big manufacturers including Continental Tire, Michelin and Nephron Pharmaceuticals, along with white-collar jobs at TD Bank. However, Haley’s office did not respond to requests for comment on the data-center legislation Monday or Tuesday.

This story was originally published May 2, 2012 at 12:00 AM with the headline "House OKs tax break for data centers."