DENVER — As more than 250 bills make their way through the Colorado legislature this session, two competing bills could determine the future of data center development in the state.
At least 38 states currently offer tax incentives for data center development, and some Colorado lawmakers are hoping to hop on that bandwagon with proposed bill HB26-1030.
“Ultimately it’s a competitiveness factor,” said Rep. Alex Valdez, a Democrat representing parts of Denver and a main sponsor of the bill, which is currently under consideration.
“Colorado is one of only 12 states that doesn’t have any kind of incentive for this development. There’s a lot of revenue that comes. And sometimes you have to give a little to get a lot,” Valdez said.
The bill Valdez is sponsoring, along with Democrats Rep. Monica Duran and Sen. Kyle Mullica, would offer a sales and use tax exemption for 20 years to data centers operators that commit to making a $250 million investment within five years. Other conditions for the tax exemption include committing to green building standards and an environmental sustainability plan.
But Sen. Cathy Kipp, a Democrat representing Larimer County, along with Democratic Rep. Kyle Brown, is sponsoring an alternative data center bill that proposes stricter regulations without tax incentives.
“I just don’t think we should be subsidizing the wealthiest companies on the planet,” Kipp said.
The legislative debate comes at a time of both increased development and widespread protests against data centers. More data centers are cropping up across the country as the demand rises for AI, which requires a tremendous amount of water and electricity.
“Effectively bringing these operations to the state of Colorado with good regulation is much better than saying, ‘go pollute next door and it won’t affect us,’ because it will,” Valdez said. “If all of a sudden every mega data center is in Cheyenne and they’re belching out a ton of fossil fuel emissions and they’re also consuming water, that hurts us all.”
The “sales and use tax exemption” for data centers is a common state-sanctioned tax incentive among the 38 states that are incentivizing data center development. Some other states also provide property tax exemptions. The sales and use tax exemption could go toward equipment and machinery purchases such as servers, racks and cables, said Adam Thimmesch, a law professor focused on state tax policy at University of Nebraska.
“A sales tax like this has a little bit less danger than broad-scale corporate income tax reductions,” Thimmesch said.
“As a matter of sales tax theory, this tax incentive is a good thing. Those business purchases [of equipment and machinery] should generally be exempt from sales tax anyway,” he said. “[Otherwise they could] just increase their prices and then the consumer pays.”
But Thimmesch warned that a 20-year time horizon can be risky for a relatively unpredictable and unstable industry.
“You don’t know what it’s going to look like in five or 10 years,” he said. “It commits the government. So it does raise the stakes in a way that is worth really thinking about.”
