Washington State has voted in favor a sales tax break for companies looking to build and operate data centers in rural areas.

The tax break, which will take effect in April and last until 2018, was approved in a 91-2 vote in the state’s legislature. It still needs approval from Governor Chris Gregoire before it comes into effect.

The vote overturns a controversial measure taken in 2007, when the state ruled that data centers would no longer be covered by a sales tax break offered to manufacturing companies on the purchase of equipment used in producing products. The state’s attorney general ruled at the time that data centers didn’t qualify for the tax break because they “do not produce a product which is sold to the companies’ customers.”

Since that policy change, a number of companies have said they scuttled plans to build data centers in the state in favor of states that maintain the tax break.

In January, the Washington Research Council issued a report which tried to put a figure on revenues being lost to the tax measure. It determined that existing data centers in eastern Washington had contributed about $1.17 billion in tax revenues for the counties of Chelan, Grant, and Douglas. Microsoft, Yahoo, Intuit, and Ask.com are among the companies operating data centers in the eastern corner of the state.

The council report also estimated that data center construction had created more than 1,000 jobs between 2004 and 2008.

The state’s revenue department estimates reinstating the tax break will cut into state revenues to the tune of about $28 million. That figure would be recurring about every three years, however, as most data centers are on a three-year refresh rate.

Washington had been a popular location for data centers because of the availability of green-friendly hydroelectric power and lower electricity rates. The state hopes the tax reversal will lure more projects to rural Washington, and boost tax revenues.

The measure provides a sales and use tax exemption that applies to sales of server equipment installed in a data center, labor and service charges for installing servers, as well as power infrastructure equipment. Data centers must be located in a rural county and be at least 20,000 square feet in size.



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