Committee OKs tax breaks to land data center, concerns still remain

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LANSING, Mich. (AP/WXMI) — A legislative committee has approved tax breaks needed to ensure a major data center developer chooses Michigan for its first campus in the eastern United States.

Bills OK'd 8-5 Wednesday by the House Tax Policy Committee would exempt Nevada-based Switch and current Michigan data centers from sales, use and personal property taxes paid on servers and other equipment.

Switch plans to locate a massive data center campus near Grand Rapids, starting inside a pyramid-shaped building that once housed furniture maker Steelcase's research facility. The company says the project will be a $5 billion investment for the area that will help create upwards of 1,000 new jobs.

Switch says it will not come to Michigan without the tax incentives.

“This is corporate competition," Roger Martin, spokesperson for Switch, told FOX 17. “Michigan can choose to compete or not and that’s really what we’re talking about here.”

Fiscal analysis of the bills conducted by the state's non-partisan fiscal agencies in both the House and Senate concluded the bills "would reduce General Fund and School Aid Fund revenue as well as local unit revenue by an unknown, although potentially significant, amount."

The analysis from the Senate conlcuded the amount potentially lost would depend on the number of affected taxpayers and their specific characteristics, but likely would total at least $11.4 million per year.

Analysis from the House Fiscal Agency estimates even larger losses, citing an "immediate revenue reduction is estimated to fall between $20 million to $30 million on an annual basis."

There are currently about 40 data centers operating in Michigan that would become eligible for the exemptions, according to the report.

Rep. Ken Yonker, R-Caledonia, who was integral to introducing the legislation, said Switch and other data storage companies will still pay business and incomes taxes if the bills are passed. Yonker said the breaks only apply to sales tax the company would pay for the massive equipment needed to run the operation.

"If this was corporate welfare we’d be giving them money," Yonker said. “This is a tax structure that allows them to set up and be free of certain taxes, its not a handout to them.”

While supporters say Michigan must level the playing field and compete with other states for the emerging cloud computing industry, critics oppose such targeted tax breaks as unfair and question the budget impact.

The Michigan Chamber of Commerce publicly opposed the bills during testimony Wednesday, stating worry that the bills too closely mirror ones which supported the film tax credits that have largely come under fire for not providing the promised return on investment.

"We don't disagree that Switch might be a magnet, but is it a magnet for actual human beings or is it a magnet for tax-free equipment," Tricia Kinley, spokesperson for the Chamber, said during testimony.

"To be sure, lets all be positive that we're talking about the same thing; We're not talking about data processing with people and human beings, we're talking about server farms."

Kinley also said they'd prefer requirements be tied to the bills specifying the number of jobs Switch intends to create.

“There’s a lot of questions, a lot of flags about the cost per job and what the return on investment for Michigan would be," she told FOX 17. “We certainly want to see that building put to good use and would welcome Switch here, but at what cost to Michigan?

And that’s where the Legislature should slow down, do their homework, make sure the bills are drafted in a way that’s fair.”

The bills now move to the House floor for consideration. Similar bills are also advancing through the Senate.

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5 comments

  • weaselpuppy

    It would be more helpful to factor in the net economic impact of new tax revenue (income, sales, real estate,) plus use taxes (airport fees per trip per passenger for all of the new activity) plus 2nd effect new tax revenue (new service businesses, additional revenue by local businesses serving Switch and it’s 400 new local employees plus 600 or so co-located client employees who will still buy gas/food/services while working here MINUS the expected lowered revenue from the above story. Pretty easy to see te benefit without even including the big one time pulse at the beginning with the buildout involving local construction, infrastructure and technology businesses.

    • Mark

      It would indeed be helpful…which is why everyone is trying to spin that figure 1000 different ways by including what they want to show and excluding what they don’t want to show. But nobody is even proposing an outside, independent analysis, even though that is the responsible and prudent thing to do. You know why? Because they know what it would show. Switch certainly knows, which is why they put such a tight deadline on the deal. We simply can not consider this deal in a responsible manner with a deadline like that. So instead of letting it go, our legslators are instead going to act in an IRRESPONSIBLE manner and approve something that will cost this state both financially and in terms of future development/progress.

      If a guy tries to sell you a car for cheap, but says he will only sell it to you at that price if you buy it in the next 5 minutes, do you do it? Do you not take it for a drive, not take it to the mechanic to look it over, do you just give the money to the guy and hope that the car doesn’t have something wrong with it? That is the situation here.

      You are right, weaselpuppy. It WOULD BE helpful to to factor in the net economic factors. But that is not going to happen here, and us MI taxpayers will pay for that mistake. Again.

  • Mark

    Michigan is getting ready to screw itself again. There is no way that this should even get to a vote, let alone pass. It is horrible legislation that will not add a single new job for MI residents and will cost the state millions (primarily from the education budget!). What is worse, it sets a precedent for adopting corporation-specific tax legislation. That may not be illegal from a tax perspective, but it sure isn’t a smart or fair thing to do. If this passes it will discourage small ethical businesses from coming to MI and encourage only the huge unethical corporations with records of bleeding states dry before they pull up stakes and move on to the next one. Does no one remember what GM did to this state? This is what we are inviting to happen again by adopting legislation like this! This is EXACTLY what allowed GM to leave us hanging, and our legislators are getting ready to do it again!!

    And they wonder why people are fleeing this state as fast as they can?

    Well, I am sorry but if this passes I am going to relocate my own business to another state because I am NOT going to go through what I went through with GM again. The second kick from a donkey is not a learning experience. Shame on the MI government for even considering this, and shame on MI voters for allowing these idiotic corrupt and cronyism-driven representatives to stay in power!