Lawmakers OK tax incentives for Switch data center in Michigan

By David Eggert, Associated Press

Wednesday, Dec. 16, 2015 | 2:52 p.m.

LANSING, Mich. — Gov. Rick Snyder on Wednesday tried to distinguish between tax incentives that the Legislature approved for a tech company to expand into Michigan and another type he has long railed against, contending in part that the legislation would help an industry instead of just one business.

The Republican governor declined to say if he will sign the breaks that lawmakers passed late Tuesday for Nevada-based Switch and data centers already in the state. But he said the exemptions are not like refundable tax credits awarded to the Detroit Three automakers and other companies — mostly before he took office but for which the state is liable until around 2030.

Snyder said the new breaks are "not just for one company," and legislators narrowed the sales and use tax exemptions from what was initially proposed. He said Michigan already exempts industrial processing from the 6 percent taxes.

"It's always been viewed as kind of retail tax so it doesn't apply if you're making something and you sell from one supplier to another supplier," he told The Associated Press in an interview. "So in some ways, the question is ... when you're talking about these data centers, is that roughly equivalent to industrial processing for cyberspace?"

The legislation would exempt Switch and its "co-located" clients from paying sales or use taxes on servers, computers and other equipment for 20 years at a planned mega-data center campus near Grand Rapids. The tax incentives also would be available to about 40 existing Internet data centers in Michigan.

The data center industry, as a whole, must add 400 jobs by 2022 and a total of 1,000 jobs by 2026 for the tax exemptions to continue under amended bills passed 61-46 in the House and 26-12 in the Senate.

Switch, which has more than 8 million square feet of data centers in Las Vegas and Reno, will make Michigan the site of its first facility in the eastern United States instead of other states it was considering, including New York and Ohio. Citing Michigan's cool weather and lack of natural disasters, the company in November announced plans to build a 2 million-square-foot campus in Gaines Township contingent on approval of tax breaks, which are available to data centers in at least 22 other states.

Switch said construction planning and work will begin soon. The data center will be operational by the end of 2016 and be based in a pyramid-shaped building that once housed office furniture maker Steelcase's research facility.

"We look forward to working in partnership with Michigan to attract the largest companies in the world to the Switch ecosystem here in the Great Lakes State," said Adam Kramer, executive vice president of strategy for Switch.

Switch's 1,000 clients include eBay, Google and Amazon. The demand for data centers, especially large ones, is being fueled by cloud computing and an increasing reliance on outside firms to provide computer infrastructure for businesses because of cost, security and other reasons.

"There's nothing certain in this world except that data is growing faster than anything on the planet," said Rep. Jim Townsend, D-Royal Oak.

Rep. Rob VerHeulen, R-Walker, said Michigan "has a unique opportunity to compete for high-tech, well-paying jobs in an emerging industry."

Opponents said the legislation unfairly favors data centers at the expense of other companies. They said it flies in the face of Michigan's recent elimination of film industry tax incentives, and they noted how the state faced budget problems this year due businesses redeeming larger-than-expected business tax credits that were awarded under a former economic development program.

"To pick and choose the property that is exempt is to leave every other taxpayer, every other loyal taxpayer, without the political muscle to extract an exemption for themselves to wonder who is representing them and why they must carry the cost of government," said Rep. Earl Poleski, R-Jackson.

Switch estimates the campus will employ at least 1,000 workers and spend $5 billion over 10 years. The minimum starting wage is $15 an hour plus benefits. Most jobs pay between $60,000 and $200,000.

The nonpartisan House Fiscal Agency projects a $13 million annual loss in revenue from current data centers, not including any co-located businesses that also will qualify for the preferential tax treatment and the possibility that existing companies will spin off their data departments into subsidiaries in an attempt to obtain the tax breaks.