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Taming the Wild World of Data Center Taxation: Why Valuations Go Wrong

When it comes to property tax assessments, data centers are in a league of their own: Misunderstood, misinterpreted and usually overtaxed.

Elaborate investment and financing deals, complex tenant – landlord lease structures, and regional competition for site selection have left tax assessors struggling to value data centers accurately. The standard construction cost metric in the data center industry is dollars per kilowatt, but there is no standard, consistent methodology that assessors use to determine the taxable value of a data center’s real estate and business components.

As jurisdictions implement new regulations to capture tax revenue from these properties, assessments have become inconsistent, unpredictable, and costly for data center owners and occupants. However, property taxes are the single largest operating expense, and thus, mitigating the uncertainty borne out of this confusion can significantly impact the bottom line of everyone involved. In this article, we’ll tackle the wild and unexplored landscape of data center valuation and tax assessments. We’ll explain what makes valuing a data center so complicated, recommend the best methodology, and propose changes that would ensure more accurate assessments and allow for better tax planning for data center owners, operators, and tenants alike.

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