Microsoft, other data centers would be exempt from equipment sales tax under new bill

Microsoft's proposed data center in Mount Pleasant would likely be the first beneficiary of a bill introduced Monday to exempt data center equipment, software and other costs from state sales and use taxes.

The bill's authors, Rep. Shannon Zimmerman, R-River Falls, and Sen. Romaine Robert Quinn, R-Cameron, say the exemption is needed to attract tech companies that are rapidly developing networks of data centers to support their cloud computing customers.

They argue that similar exemptions have been adopted in Illinois, Iowa and Minnesota resulting in billions of dollars in new development. In Illinois alone, a change in tax law in 2019 was credited with spurring $4 billion in data center investments, and upcoming projects would double that, according to a 2022 report by Virginia-based Mangum Economics.

Continuing to tax data centers' capital-intensive, but frequently replaced or upgraded, property would put Wisconsin at a competitive disadvantage at a time when the need for massive "hyper data centers" is exploding and expected to increase with the growth of artificial intelligence, Zimmerman said.

"The acceleration of AI is the real deal," Zimmerman said. "It's here to stay and it is going to have a profound effect on all aspects of life, and these types of centers are at the heart of really bringing this stuff to scale. So I'm glad Wisconsin is at least at the table and being part of the conversation."

More:Microsoft will build a $1 billion data center in Mount Pleasant. Here's what we know about it.

The bill has support from a coalition of business interests including the state's publicly-traded and cooperative power utilities; Wisconsin Manufacturers & Commerce; the Wisconsin Economic Development Association; NetChoice, an association of e-commerce companies; and the Data Center Coalition, which represents 24 of the nation's largest data center operators, including Microsoft, for which the bill would save millions of dollars on its Mount Pleasant data center.

In a statement of support filed by the coalition, Microsoft said it looks at "customer demand, site-specific data points and business environment," when it considers a new data center.

"Total cost of ownership is an important factor. Passage of a data center incentive bill that lowered total cost of ownership would increase Wisconsin's favorability and enable it to become more competitive with other states as companies consider investing, or growing their investments in the State," the company said.

Microsoft in April reached an agreement with the Village of Mount Pleasant to buy a 315-acre site east of Foxconn for a $1 billion data center. That deal is expected to close by the end of July.

Zimmerman said the timing of the bill, less than a month after announcement of the Microsoft deal, is not a coincidence, but the bill's intent is "so much bigger than just Microsoft." It's looking forward, he said, to the growth of artificial intelligence and the additional demand it will drive for data management and processing.

"I wouldn't have done the bill for one individual company," he said. "I believe in and understand the sector. I know its strategic importance, not just to Wisconsin but to the nation as AI really starts to accelerate. So this bill, if passed, will really serve as a nice recruiting tool for any and all of those types of organizations."

Zimmerman said the tax breaks are incentives for new developments and would not be available to centers already operating in the state.

The bill would provide tax exemptions for projects with minimum costs ranging from $50 million to $150 million depending on the size of the community in which the data center is built.

The tax exemptions would apply to servers and other computer equipment, parts and upgrades, software, electricity and electrical connections, cooling equipment, water conservation systems, and any other property as determined by WEDC.

Those exemptions are similar to the tax breaks that are available to Wisconsin manufacturing companies, according to a memo to the Legislature from the bill's business-community supporters.

Tax incentives used to lure data center operators would be offset by additional economic development, the creation construction and data center jobs, and income and property tax payments, according to a study Mangum Economics prepared for Wisconsin.

Zimmerman said he's had positive discussions about the bill with Democrats who share an interest in bringing technology firms to the state. Senate Minority Leader Melissa Agard, D-Madison, did not immediately respond to a request for comment.