State bill proposes exempting data centers from sales tax

Bills making their way through the Pennsylvania legislature would provide data centers with a sales tax exemption on purchased equipment.

A pair of bills making their way through the Pennsylvania Senate and House would, if passed, provide data centers with a sales tax exemption on purchased equipment.

A data center is a centralized hub to store and disseminate digital data. Data centers can be set up to serve a specific organization or work with many different clients who outsource their data storage needs. The buildings include environmental controls, security and backup power.

The sales tax exemption applies to new and expanding data centers in the state that invest at least $25 million in a small county or $50 million in a large county, and have at least $1 million per year in payroll. 

On a $50 million equipment purchase, the state would forego collecting $3 million. 

“Attracting these kinds of high paying jobs and high capital investments to Pennsylvania is something that would be good for all of us. We have to be competitive with other states,” said  Republican Senator Scott Hutchinson, the primary Senate bill sponsor.

Close to 20 states currently have some form of tax incentive for data centers, including some of Pennsylvania’s neighbors.

Hutchinson said annual data center construction is expected to grow, and he hopes “a large chunk of that can be in Pennsylvania.” 

Data centers do not bring in many jobs, but the jobs they do support tend to pay well.  According to the Pennsylvania Department of Labor and Industry the state currently has 595 data centers employing 10,075 people, about 0.18 percent of total employment in Pennsylvania. The average salary is $72,852.  

Data center companies exist in almost every county in the state, but they tend to concentrate in denser areas, particularly in Allegheny County, where Pittsburgh is, and in Philadelphia and surrounding counties.

Data centers need access to lots of electricity, and quick dependable internet (especially if they’re working with financial markets where reducing lag times is critical). In this way they resemble traditional manufacturing, which concentrated around cities with proper infrastructure in place. Labor is another key factor companies consider, and data centers require highly educated workers for whom quality of life could be a major consideration.