Iron Mountain Data Center

The opening of the Iron Mountain Data Center in Prince William County in 2017. File photo, provided

Corey Stewart wants to trade a major tax hike on Prince William’s data centers for some tax relief for county residents and small businesses — but the backlash to that proposition has been so intense that he may not be able to deliver on the coveted election-year tax cut.

Stewart, the Republican chairman of the Board of County Supervisors, is proposing that the county effectively triple its “programmable computer equipment and peripherals” tax rate, a move that would overwhelmingly affect companies in the data center business.

Naturally, that’s prompted intense condemnations from interest groups like the Northern Virginia Technology Council and the county’s Chamber of Commerce, which have begun working to convince the board that such a tax hike would cripple one of the county’s strongest businesses.

But Stewart is pitching the change as a win for Prince William taxpayers, as he hopes to use the $21 million that the tax increase would generate in fiscal 2019 to slash the county’s real estate tax rate. In a rare divergence from his normally cozy relationship with local businesses, Stewart has even begun painting the tax hike as a chance for the mammoth tech companies controlling most of the county’s data centers to pay their fair share.

“The big data center companies in Prince William County are some of the largest, wealthiest corporations in the world,” Stewart said. “And I think people are concerned about data centers because these are big, ugly buildings that employ very few people, push up the cost of commercial land and drive the need for even more transmission lines in the county. We’re giving them a tax break, and that’s not right.”

That sort of argument may have some appeal to his colleagues on the board, particularly as some supervisors have grown frustrated with the massive plots of land that data centers tie up. It doesn’t hurt Stewart’s case, either, that Dominion Energy’s bitterly controversial plans to build a power line through western Prince William were, in part, driven by the needs of an Amazon-controlled data center in Haymarket.

Yet the timing of Stewart’s proposal has raised some eyebrows. A tax cut for county residents would make for a nice feather in Stewart’s cap as the June 12 Republican primary for the U.S. Senate race draws closer, particularly as one of his chief rivals (Del. Nick Freitas, R-30th District) has begun attacking his record on managing the county’s tax burden.

“How and when he’s doing this all calls into question his motivations,” said Supervisor Frank Principi, D-Woodbridge. “This is not the first time he’s done this sort of thing. It’s not a one-off. Something conceived in this kind of environment is probably not the right thing to do.”

Those doubts about Stewart’s intentions, when combined with staunch opposition from the county’s business community, could certainly scuttle his data center tax hopes. But as the board’s budget season kicks into full gear in April, it’s impossible to rule out that some supervisors will take Stewart’s proposal seriously.

BUSINESS BACKLASH

The chief obstacle Stewart will need to overcome in this tax push will likely be the concerted lobbying efforts by the chamber and the tech council to keep the computer equipment tax rate flat at $1.25 per $100 of assessed value.

“It’s just does not create a very welcoming business climate,” said Brendon Shaw, the county chamber’s director of government relations. “Without data centers, where do you backfill that capital investment in the county?”

Stewart argues that increasing the tax rate won’t cause companies that have already invested in Prince William to flee the county, as doing so would force them to abandon the large facilities they’ve already spent millions to build. But Josh Levi, the Northern Virginia Technology Council’s vice president for policy, believes that sort of view represents a misunderstanding of the industry, and he’s been working with supervisors to adjust that impression.

Levi says that data centers tend to fall into one of two categories: “enterprise” facilities controlled entirely by one company, and “colocation centers” where a company rents out server space to other, smaller businesses. For the former, Levi says, companies are often looking to expand existing facilities and need to refresh equipment in those data centers every three-to-four years. For the latter, he says, the owners of servers for rent need to pass along equipment costs to their “tenants.”

Accordingly, Levi believes a major tax increase would dissuade companies from expanding, and scare away potential customers at colocation centers.

“It’s about dollars and cents, not emotions, for these companies,” Levi said.

Considering that Levi’s group found that the data center industry has accounted for 92 percent of all new capital investment in the county from 2012 through 2017, he says the county can’t afford to scare the businesses away. Levi also noted that other Virginia localities, from Henrico County to Virginia Beach, have slashed data center tax rates in recent years to levels far below even Prince William’s current rate.

“We have to look at this outside of the Northern Virginia competitiveness,” said Supervisor Jeanine Lawson, R-Brentsville. “I’ve now got folks who are lobbying me to reduce [this tax rate], not increase it at all.”

But Stewart points out that Loudoun County has long charged a substantially higher computer equipment rate — it currently sits at $4.20 per $100 of value, compared to the $3.70 that Stewart envisions for Prince William — and companies are still “pounding on their door to build more of them.” That’s largely because of Loudoun’s unique proximity to the world’s densest intersection of fiber networks, and now that so many tech companies have set up shop in the area, Stewart is skeptical they’ll simply disappear elsewhere.

“Even after we do this, the personal property rate on data centers will still be significantly lower than the rate in Loudoun County,” Stewart said. “Because we’re giving this massive, special tax break to data centers, everybody else’s taxes are higher than they have to be.”

FINDING FIVE VOTES

That line of thinking makes sense to some of Stewart’s fellow officials. Supervisor Pete Candland, R-Gainesville, notes that he proposed doubling the computer equipment rate a few years earlier over similar concerns about fairness.

“We’ve protected this one tax for 20 years, without touching it, while our need for infrastructure has continued to rise,” Candland said. “I appreciate them not wanting their tax rates to go up, but this is something we’ve lived with as residents, because we’ve had to pay for that infrastructure.”

Yet Candland was hesitant to support fully tripling the tax rate at once, fearing it might be too much for the industry to absorb “in one fell swoop.” Supervisor Ruth Anderson, R-Occoquan, also said she “will likely support some amount of increase” but suggested “there might be some options like a tax that gradually increases over the years or a way of grandfathering in” some businesses.

Even Principi said he would be open to some sort of data center tax increase, but he believes tripling the rate for the new fiscal year would be a “sucker punch” to the industry. He’s also concerned that using the tax hike to simply decrease taxes elsewhere would be a short-sighted move that doesn’t address the county’s “very acute infrastructure deficit” when it comes to the need for new roads and schools.

That’s why Candland suggested that one compromise might be using some of the new tax revenue to send more money to the school division to reduce classroom overcrowding — he says he’s working with other supervisors to chart out a “bold way to address the schools’ capital needs over the next 10 years,” though he doesn’t have specifics ready just yet.

Principi and Lawson are skeptical that Stewart will be able to find the five votes he needs to pass the data center tax change in the first place, especially with county businesses so concerned about its impact. Shaw notes that the tax affects any business that owns computer equipment, and he expects the community to make its voice heard on the matter — county spokesman Jason Grant said 4,365 businesses paid the tax last year.

(1) comment

RobS

One tough thing about a 300% tax hike is that any business paying the tax with computers (and there are many of them) are also lumped into paying this as well. What about the smaller business with 10 employees that just had his tax tripled? Can we get some relief for him? He's employing local, using local real-estate and the owners probably live in the county as well -- paying property taxes and others.

Another angle -- what's the effective commercial tax rate for these data center buildings? Are they reasonable compared to others? Small business doesn't need a 40k square foot building.

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