Washington data centers lose tax exemptions starting July 1: What to know

A new state law in Washington, S.B. 6231, has eliminated tax exemptions for data centers on equipment repairs and infrastructure updates, effective July 1. Previously, data centers in both rural and urban counties could receive certificates for sales tax exemptions on server equipment and power infrastructure purchases and installations. Now, all data centers will be required to pay the state's 6.5 percent sales tax on these costs, including associated labor.

The law, sponsored by Senators Noel Frame and Bob Hasegawa, aims to prevent private interests from exploiting tax benefits. Supporters, including Sheri Sawyer, legislative affairs director in the Washington State Office of Financial Management, argue that while the exemptions were intended to foster job growth, they led to significant electricity usage without generating the anticipated number of permanent jobs.

Conversely, opponents such as Senator Chris Gildon, R-Puyallup, contend that repealing these tax preferences is shortsighted and will harm economic growth, putting Washington at a competitive disadvantage, especially compared to neighboring states like Oregon. Unionized electrical workers also voiced concerns, fearing the policy might trigger renegotiations of existing contracts with data centers.

This legislative action comes as Washington pursues a carbon-free power grid by 2045, prompting significant lobbying efforts from major tech companies like Microsoft during the recent legislative session, particularly regarding other proposed bills that could impose tariffs and higher electricity rates on data centers.