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Background

Northern Virginia leads the data center market with more than 650 data processing, hosting and related businesses employing approximately 13,900 people. It has been reported that over 70% of all internet traffic flows through the Dulles Technology Corridor, which many refer to as “Data Center Alley”. The data center market is becoming increasingly competitive and demand for data warehousing is at an all-time high.

Property Tax

As a result of the Virginia data center boom, taxing jurisdictions have become increasingly aware of the business value and the subsequent tax revenue that can be generated from these facilities, with a comparatively low burden on local infrastructure and services. However, they are struggling to find a way to accurately and consistently value them.

Virginia recently enacted Virginia Senate Bill 268, which will come into effect on July 1, 2018, that creates a specific classification for data centers for valuation purposes. Computer equipment and peripherals used in data centers will be considered based on separate guidelines when valued for personal property tax purposes. The new class of property must be valued by means of a percentage or percentages of original cost or by such other methods as may reasonably be expected to determine the actual fair market value. Previously, computer equipment and peripherals used in a data center did not have a separate classification for valuation purposes.

At this time, there do not appear to be any established standards or consistent practices among the counties in the valuation of real estate associated with data centers for property tax purposes. As a result, property taxes on similar investments could vary significantly from county to county. It is critical that an understanding of the valuation position taken by a county be obtained where a data center investment is being contemplated to avoid what could later become a significant variance from expected ROI attributable to property tax assumptions.

 “We represent several data center owners with multiple properties in Northern Virginia and will continue to monitor the situation and work closely with the localities as they adopt and make changes based on the new legislation. Our goal is to ensure that the valuation methods utilized in the region for property tax purposes result in fair and equitable assessment of these unique properties.” explains Selena Longway, Senior Director in Altus Group’s Complex Tax & Advisory Services.

Business, Professional, and Occupational License (BPOL) Tax

Data centers in Virginia also face the unique BPOL tax, which is a tax that is imposed on the company’s gross receipts in a locality. “As revenues grow, the liabilities that data centers face with regards to BPOL can become significant. We have helped taxpayers reduce their BPOL liability by ensuring that any deductions and exclusion that are available to the taxpayer are taken. Taxpayers need to be on the lookout, as we have also seen inconsistent positions by localities”, explains Amber Guenther, Senior Manager, who specializes in BPOL tax matters at Altus Group.

Economic Development, Credits, and Incentives

The major markets for data centers include Northern Virginia, Chicago, Dallas, Phoenix, Seattle, Portland and the Silicon Valley area. In order to attract data centers to Northern Virginia specifically, there are an array of incentives to assist new and existing businesses to the area.

As demand for data centers continues to increase, the need to expand and construct data centers in locations where there is good infrastructure (energy, water, space, logistics, and air/highway) and a competitive and talented workforce will also increase. Northern Virginia is a leader in this specialty market and that, coupled with gracious incentive programs, continues to make the region a viable area for future growth. We have seen clients noticing this trend and proactively purchasing land on nearby parcels or in new strategic locations in support of their growth initiatives.

Altus Group has partnered with the Virginia Economic Development Partnership (VEDP) and has achieved viable economic incentive programs for data centers at both the statutory and locality level. As existing facilities near their capacity, we have assisted clients in identifying and targeting existing facilities to expand their business.

 “Selecting a site for a data center should be approached holistically. Incentives are important because they drive operation costs now and in the future. But more important are real estate and construction costs, which vary widely across the country. Examining all of these options — including the option to co-locate — is why locating data centers has become increasingly complex, and why it has become a specialty in business site selection”, says Tom Dubel, who leads Altus Group’s Location and Incentives Strategy practice.

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Selena LongwayLongwaybu-state-local-tax location-incentive-strategiespersonal-property-taxdata-center-taxationreal-property-taxhunt-valley

Senior Director, Complex Tax & Advisory Services

Last updated on September 4th, 2019 at 04:04 pm

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