- Associated Press - Thursday, December 3, 2015

LANSING, Mich. (AP) - The state Senate on Thursday narrowly approved lucrative tax breaks designed to guarantee that a major Internet data center developer chooses Michigan as the site of its first mega-campus in the eastern half of the U.S.

The fast-tracked bills, which were passed 21-15 by the Republican-led chamber over objections from critics of targeted tax incentives, are needed for Las Vegas-based Switch’s plan to locate a facility near Grand Rapids. The House could pass similar measures next week, setting the stage for final voting before lawmakers adjourn for the year.

The legislation would fully exempt Internet data centers and their clients from 6 percent state sales and use taxes on servers, computers and other equipment for 15 years. They also would not have to pay property taxes on business equipment for 10 years, unless local governments object.

Switch data centers host thousands of stacks of servers owned by more than 1,000 clients, such as eBay, Google and Amazon.

Supporters say the tax breaks are essential to make Michigan competitive with at least 22 other states offering incentives to a flourishing cloud-computing sector. Switch estimates the campus will employ about 1,000 workers and spend $5 billion over 10 years. The business would be based in Gaines Township, in a massive Pyramid-shaped building that once was office furniture maker Steelcase Inc.’s research facility.

“With every device we buy, every app we download, the demand for these services goes up. Together, these bills will create an environment in Michigan for this growing sector to thrive,” said a bill sponsor, Republican Sen. Tonya Schuitmaker of Lawton, whose district would be home to the data center campus.

Opponents countered with concerns about lost tax revenue hurting government services, adding that data centers already are operating across the state without tax incentives.

“I think it’s worth asking ourselves why we need to give away the store to get one more company to locate here,” said Democratic Sen. Rebekah Warren of Ann Arbor.

She said Democrats “want to get to yes,” but she questioned why the bills include no requirements that Switch meet minimum spending and hiring levels to qualify for the tax breaks. The influential Michigan Chamber of Commerce lodged a similar complaint, saying it was “very disappointed with the … decision to hastily grant hundreds of millions of dollars in sales and use tax breaks to an out-of-state company without the guarantee of a single job.”

But House Tax Policy Committee Chairman Jeff Farrington, R-Utica, said the data center legislation is a broad-based tax change for “a segment of our economy that didn’t exist prior to 15 years ago.” He likened the bills to major business tax overhauls in recent years that were not linked to job growth prerequisites.

According to a fiscal analysis of an earlier version of the Senate legislation, the annual tax breaks for at least 43 current data centers would total at least $21 million. If Switch and its clients spend $5 billion over time, the state and local governments could forego at least another $228 million by 2030.

Senators changed the bill to require the Legislature to shift money every year so the school aid fund would not be impacted by revenue losses.

Nineteen Republicans and two Democrats voted for the legislation; nine Democrats and six Republicans opposed it. Two Republicans were absent.

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Online:

Senate Bills 616-17: http://1.usa.gov/1N5Y27a

Senate Bills 618: http://1.usa.gov/1NJOioR

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Follow David Eggert at http://twitter.com/DavidEggert00 . His work can be found at http://bigstory.ap.org/author/david-eggert

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