A recently-implemented tax policy in Wisconsin that exempts data center equipment, software and other costs from state sales and use taxes has become a "linchpin" in spurring data center development in the state, according to
Aaron Bilyeu, chief development officer of
Cloverleaf Infrastructure, which is proposing a sprawling data center campus in Port Washington.
Cloverleaf's project is part of a growing list of large scale data centers planned or under construction in the state, with officials announcing this week that
Microsoft plans to build a new data center in Kenosha that would be built in addition to its
multi-billion project in Mount Pleasant already underway, and, last week, a New York-based company announced a
multi-million project in Wisconsin Rapids.
In 2023, the state's biennial budget, approved by the Legislature and signed into law by Gov. Tony Evers, included a provision that offers tax exemptions on dozens of materials needed to construct and operate data centers like servers and other computer equipment, parts and upgrades, software, electricity and electrical connections, cooling equipment, water conservation systems, and any other property as determined by the
Wisconsin Economic Development Corp., according to state documents.
The provision provides tax exemptions for projects with minimum costs ranging from $50 million to $150 million depending on the size of the community in which the data center is built.
“When you start adding in the cost of the servers, these projects can be in the tens of billions of dollars, so these taxes are not an insignificant amount of money," Bilyeu told BizTimes. "It's why places like Colorado don't have any big data centers.”
Similar exemptions have been adopted in Illinois, Iowa and Minnesota resulting in billions of dollars in new development, supporters of the policy argued when it was under consideration. In Illinois, a change in tax law in 2019 was credited with spurring $4 billion in data center investments, and upcoming projects would double that, according to a 2022 report by Virginia-based Mangum Economics. In Iowa, which implemented exemptions in 2009, Microsoft has invested more than $6 billion since 2010.
Microsoft did not respond to a request for comment on whether the tax exemptions played a role in its decision to develop data centers in Wisconsin, but the company did submit a statement of support for the policy saying it looks at "customer demand, site-specific data points and business environment," when it considers a new data center.
"Total cost of ownership is an important factor," the company said. "Passage of a data center incentive bill that lowered total cost of ownership would increase Wisconsin’s favorability and enable it to become more competitive with other states as companies consider investing, or growing their investments in the state."
The data center exemptions are similar to the tax breaks that are available to Wisconsin manufacturing companies, according to business community supporters.
Tax incentives used to lure data center operators are offset by additional economic development, the creation of construction and data center jobs, and income and property tax payments, supporters of the policy argued.
“As a tech entrepreneur in the state of Wisconsin, I see the long-term sustainable value of enhancing and expanding tech businesses within our state," said Rep. Shannon Zimmerman, one of the authors of the bill and founder of Sajan Inc., a language translation company, in a statement. "The rise in artificial intelligence and the required infrastructure to run these applications represent a great opportunity for Wisconsin to benefit. As state demographics change, I feel we should be doing all we can to welcome tech industry businesses.”
Since implementation of the tax exemptions last year, Microsoft has begun construction on portions of its expanded data center in Mount Pleasant, which will
span more than 1,000 acres and cost $3.3 billion, and
announced a second Wisconsin data center in Kenosha, which will span about 240 acres. Further, Houston-based Cloverleaf
unveiled early plans this month for a large data center project in Port Washington that is expected to span more than 1,000 acres and cost more than a billion dollars, and New York-based Digital Power Optimization, a developer and operator of data centers,
plans to build a $200 million data center on approximately 10 acres of land in Wisconsin Rapids.
“This was really the linchpin that unlocked the state of Wisconsin for data center investment by the big firms,” Bilyeu said.
