The House Committee on Small Business and Information Technology on Wednesday approved House Bill 379, which is intended to attract data centers to Kentucky employing at least 20 to 30 people each. It proceeds to the full House.
The bill would exempt the sales tax — currently 6 percent — on capital investments related to the construction, retrofitting, equipping and upgrading of data centers. In counties of fewer than 100,000 people, companies would have to spend at least $150 million in five years and create 20 permanent jobs. In counties of more than 100,000 people, they would have to spend at least $300 million in five years and create 30 permanent jobs.
The Kentucky Revenue Department would be allowed to revoke the exemption and pursue unpaid taxes for individual projects that failed to meet those five-year targets.
A trade association representing the tech companies called NetChoice is encouraging Kentucky and other states to compete for their data centers by cutting their taxes.
"Data centers will locate in the states that are most friendly to their businesses," NetChoice President Steve DelBianco told the House committee. "There is no natural magnet to Kentucky. There is, at this point, a natural magnet to Ohio and Indiana, to Idaho and even to Alabama. If you'd like the industry to be here, we're just inviting you to do this one small thing."
DelBianco said the average data center, the size of an aircraft carrier, costs about $800 million to build and equip with servers. Roughly half of that cost covers the servers, he said, which are replaced every three years with faster, cooler equipment.
The forfeit sales tax on $400 million in servers would be $24 million, DelBianco said. However, he said, data centers can employ up to 100 people in high-wage jobs, who pay income taxes and contribute to their local economies, and they pay real estate taxes that support schools and local governments.
Recent studies show the cost-per-job from states' data center tax breaks is between $1 million to $1.95 million, the Kentucky Center for Economic Policy said in an analysis this week. Although they are physically big and use a lot of electricity to run the servers 24 hours a day, the centers "employ very few people," the analysis said.
The legislature passed a similar version of the bill last year. But Gov. Andy Beshear vetoed it, saying it gave away public money "based merely on the promise of a project" and that there was "a lack of discretion to say 'no' to a project that is certain to fail."
While the House committee overwhelmingly approved the new bill on Wednesday, several lawmakers asked critical questions.
Rep. Tina Bojanowski, D- Louisville, asked DelBianco why an existing sales tax exemption offered by the state Economic Development Cabinet is not adequate to attract the data centers. The lobbyist told her that particular incentive is capped at $20 million, while the tech industry would prefer an uncapped version.
Other lawmakers asked why the Revenue Department's claw-back on unpaid taxes would be voluntary and not mandatory if individual projects fail to meet their goals, and why — if data centers employ up to 100 people — the bill only requires 20 to 30 full-time employees, depending on local population size.
Rep. Josie Raymond, D- Louisville, said she is skeptical that the hugely profitable tech giants asking Kentucky for tax relief really need it. Meta, the parent company of Facebook, reported $117 billion in 2021 revenue, Raymond said.
"Why can't that company and others just pay $24 million to support our schools and hospitals?" Raymond asked.
Sponsors did not attach a fiscal note to this year's bill estimating its impact on the state treasury. But the fiscal note on last year's bill estimated the cost would start at $15 million in the first year and then rise.
"The negative impact to the General Fund at full implementation will be substantial if a number of entities avail themselves of this exemption," the fiscal note continued.
© 2022 the Lexington Herald-Leader (Lexington, Ky.). Distributed by Tribune Content Agency, LLC.
