Server-farm subsidies uncertain in WA Legislature

DATELINE: OLYMPIA Wash.

Major tech companies' campaign for a server-farm tax break appears stalled in Washington's Legislature, just a day after hometown favorite Microsoft Corp. won an incentive package from Iowa lawmakers.

The Washington plan, proposed by Gov. Chris Gregoire, would have given Microsoft, Yahoo Inc. and others a multimillion-dollar tax discount on replacement equipment at server farms buildings that house huge banks of computers crucial in the growing market for Web-based services.

Microsoft and Yahoo say better tax rates are crucial for continuing plans to expand server farms in rural Eastern Washington, already an attractive location because of abundant, low-cost hydroelectric power.

But the powerful speaker of the state House is not supporting high-tech tax breaks, and the incentives were conspicuously absent from the House spending blueprint released this week.

Now, with just days remaining until the Senate releases its proposed budget and starts the legislative session's endgame, lobbyists and Senate staffers are hastily working on alternative tax plans, trying to find a palatable price tag.

Even a key supporter of the high-tech tax breaks, Senate budget Chairwoman Margarita Prentice, D-Renton, isn't sure Yahoo and Microsoft will get their wish this year, with lawmakers staring down a pessimistic income forecast.

"I hate for other states to beat us out on anything," Prentice said Thursday. "Whether we have the courage to do that or not, it's not strictly up to me."

The reception for similar tax subsidies was much different in Iowa.

On Wednesday, the Iowa Senate overwhelmingly voted final legislative approval for an incentive package aimed at luring Microsoft to build a multimillion-dollar data center in Iowa. Gov. Chet Culver is considered certain to sign the bill into law.

The Iowa plan would expand existing sales tax exemptions that helped persuade Google Inc. to build an Iowa server farm, with a condition that Redmond-based Microsoft spend at least $200 million on its project.

With that sort of competition as a backdrop, Yahoo and Microsoft were hoping Washington lawmakers would expand the tax breaks proposed by Gregoire, a Democrat running for her second term in November.

The governor's plan called for a 50 percent reduction in sales taxes paid on replacement equipment for large computer data centers. The estimated price tag was $13.4 million in the 2010 budget, ballooning to almost $33 million in 2013.

But the bill never passed the state House, and was left out of that chamber's budget. Rep. Bob Hasegawa, D-Seattle, was among the House opponents of tax breaks for companies that "don't seem to be hurting for money."

"I just saw it as a giveaway," particularly since server farms add relatively few permanent employees to the economy, Hasegawa said.

Speaker Frank Chopp, D-Seattle whose cooperation is key for passing anything of substance in Olympia said there's been little clamoring for the tax package from his members.

"We've done other incentives for high-tech that have proven to be very effective in terms of economic development," Chopp said Thursday. "This one doesn't seem to have the support."

In letters to Prentice and House Finance Chairman Ross Hunter, D-Medina, Yahoo co-founder David Filo said a lack of tax help would jeopardize a server farm already under construction in rural Quincy.

Filo also wrote that higher taxation "swings the decision strongly in favor of freezing construction in Washington, and building instead in Oregon (which has no sales tax), as some of our competitors are already doing."

Microsoft also blames unexpectedly high taxes for interrupting its planned expansion of a Grant County server farm, and thinks Washington could be more competitive with other states that are beckoning the company.

Microsoft's need for data centers is so great that the company is bringing a new server farm online about every 18 months, company lobbyist DeLee Shoemaker said.

"This is all part of how a global economy works these days," Shoemaker said Thursday. "You've got countries, not necessarily just states, courting businesses to develop in their areas."

On the Net:

Legislature: http://www.leg.wa.gov

Governor: http://www.governor.wa.gov