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Data Center Incentives Bill Moves Forward

An S.C. House bill that originally provided additional taxpayer-backed incentives to national corporate headquarters locating in South Carolina has been retooled to extend certain tax breaks to attract large data centers, such as those operated by Google and Facebook.

The bill (H. 3720), which passed the House last year and is back in the Senate after being amended by both chambers this year, would exempt new and existing data centers from paying state sales taxes on electricity they use and on computer equipment and software they purchase.

A section of law that would be amended under the bill is the subject of a lawsuit before the S.C. Supreme Court challenging the constitutionality of the myriad state sales tax exemptions approved by lawmakers over the years.

A House bill (H. 4995) introduced in March would eliminate a number of sales tax exemptions, though a review then by The Nerve found it was a watered-down version of another House bill (H. 4271) that has been stuck in committee since its filing last year.

Sales tax exemptions collectively cost the state $2.7 billion annually, according to a 2010 report by the legislatively created Taxation Realignment Commission (TRAC).

Besides offering sales tax breaks, the data center bill also would extend job tax credits, which can be deducted from a company’s income taxes based on the number of new jobs created and the location of the company, to “technology intensive” businesses engaged in “data processing, hosting and related services.”

Contacted Wednesday, Rep. Brian White, R-Anderson and chairman of the budget-writing House Ways and Means Committee, told The Nerve he believes the bill, which was sponsored by former Rep. Dan Cooper, an Anderson Republican and the former Ways and Means chairman, “makes us more competitive so we can attract more data centers.”

Google has a data center in Berkeley County, though there are no other similar facilities of its size in South Carolina. In contrast, Google, Facebook and Apple have facilities in North Carolina, which offers various incentives to those types of companies, said Rich Miller, founder of the New Jersey-based Data Center Knowledge, an online news and analysis site that tracks the data center industry nationwide.

“It’s very competitive,” Miller told The Nerve this week. “States that want to attract those projects have to think very hard about providing those incentives.”

Outside of construction costs, the biggest expenses for data centers typically are the costs of server hardware and electricity used by the facilities, Miller said, adding that tax breaks offered for those purposes can result in “very substantial” savings to a company.

The incentives also can cost the state’s general fund a good chunk of change if qualifying data centers locate in South Carolina, though the state Board of Economic Advisors projected the data center bill, if it becomes law, would have “no impact” on the state’s general fund next fiscal year, which starts July 1.

“The state has not attracted hosting or data processing data centers of this caliber,” according to the March 22 analysis. “In the absence of this proposed legislation, this trend is expected to continue.”

‘Ton of projects’ Lost

Under the bill, a data center is defined as a new or existing facility in which the company invests at least $50 million in real or personal property, or both, over a five-year period; and creates and maintains at least 25 full-time jobs with an average compensation of 150 percent above the per-capita income of the state or county in which the facility is located, whichever is lower.

“We’ve lost a ton of projects because our incentives on data centers are not as competitive,” Rep. Phyllis Henderson, R-Greenville and one of the bill’s two co-sponsors, said when contacted last week by The Nerve. “We have to keep our stuff up to date because of the competitive nature of business.”

Henderson said she didn’t know why or when a separate provision of the bill was stripped out that would have exempted national corporate headquarters locating or expanding in the state from paying corporate income taxes for 10 years.

Asked the same question, White, the Ways and Means chairman, replied, “I think that’s the way the Senate gave it to us.”

State law already allows for tax credits for companies establishing or expanding national headquarters in South Carolina.

A number of companies have corporate headquarters in South Carolina, including Michelin North America, Continental Tire North America, Sunoco packaging, Denny’s Restaurants and the SCANA Corp.

The data center bill was introduced in February 2011 and initially passed the House in April last year, though the Senate didn’t pass its version until April of this year. The House subsequently amended it and returned it to the Senate last week.

Similar Legislation

Besides offering incentives to data centers, the House bill also would:

  • Lower the job-creation thresholds for “qualifying service-related” companies to receive job tax credits;
  • Increase the maximum annual credit claimed by a company against its corporate license tax to $400,000 from $300,000, and allow the credit to be claimed for “refurbishment of buildings” owned or controlled by a county or municipality if the buildings are used “exclusively for economic development purposes”; and
  • Allow counties to expand fee-in-lieu-of-taxes (FILOT) agreements, which significantly reduce property tax bills of companies, to 50 years from 40 years for “enhanced investment” projects.

Those provisions are part of a separate House bill (H. 3506) that is in a conference committee made up of members of both chambers. The Nerve reported on Tuesday that the bill, sponsored by Rep. Dwight Loftis, R-Greenville, has been hung up in the conference committee over a Senate proposal that would extend job-development credits to companies that use “professional employer organizations.”

Professional employer organizations, or PEOs, are companies that provide human resources, payroll, employee benefits, workers’ compensation and other support services to typically small businesses in exchange for a fee that usually is a percentage of the client company’s total payroll.

Under state law, certain new or expanding businesses can receive job-development credits, which are refunds of a portion of a company’s employee state withholding taxes based on the workers’ hourly wages and location of the company, in exchange for meeting specified job-creation and investment requirements.

White, a member of the conference committee, told The Nerve on Wednesday that there has been no resolution since last week’s meeting. During the hearing, White said he was concerned about the PEO provision, contending that job-development credits shouldn’t be extended to companies that “lease” employees.

“I hope that part comes out so we can move forward,” he told The Nerve.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.

 

 

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