As the Legislature gets deeper into session, the lack of consensus on a major issue continues to bleed into conversations: how to handle data centers.
The data center debate gets at deeper rooted disagreements among lawmakers over how to handle economic development. Some argue the state shouldn’t use tax breaks to draw in companies and instead rely on a true free market. On the other side of the coin, some say the state should incentivize some projects and industries arguing the net economic growth outweighs the cost.
In South Dakota, data center conversations primarily revolve around state sales tax breaks. Some, like Republican Sen. Jim Mehlhaff, say South Dakota should be putting something forward to win the centers over and promote economic development.
“I think we just need to keep a bit more of an open mind on economic development in this state and be careful not to do things that send a message that we’re not interested in it," Mehlhaff said.
Mehlhaff is co-sponsor of a bill that creates 50-year sales and use tax exemptions on some of the equipment data centers use for their operations.
Others argue against it, calling the practice unfair. One is Republican Speaker of the House Jon Hansen, who’s bringing a bill that bans state sales tax incentives and sets guard rails around water and electricity. He said his bill “levels the playing field.”
"We’re not saying you can’t come here, not at all in fact. You’re still free to come here. You just have to compete in the open market like everybody else. You know, a lot of industries would love to come to South Dakota,” Hansen said. “You know, a lot of industries have built from the ground up in South Dakota, and many of those people weren’t given big tax breaks or big incentives, and so we’re just advocating for a level playing field.”
However, it’s not just Republicans who are keeping an eye on the debate. Democratic Sen. Jamie Smith says they haven’t taken a firm stance yet, but he doesn’t like the length of the tax incentives that have currently been proposed.
“When it comes to 50-year tax breaks, I’m not for that at all,” Smith said. “In talking to people in economic development, how many different businesses out there would love 50 years in no sales tax on their equipment? I mean sign me up.”
His colleague in the House, Rep. Erin Healy said they’re trying to “shave some years off," but...
“It’s also my understanding that 42 other states do have tax breaks for data centers, so we also have to keep in mind that we do have to be competitive,” Healy said.
Thus far, neither of the bills have had committee hearings.
