A House panel said no to state sales tax exemptions for data centers.
House Bill 1005 had its day in the House State Affairs Committee Wednesday. It would have provided a 50-year sales and use tax exemption on some equipment for data centers that build in South Dakota over the next decade.
While both proponent and opponent testimony was filled with voices, the committee vote indicated some in the Legislature don't have an appetite for using tax exemptions to lure industry to the state.
Steve DelBianco, President and CEO of NetChoice — a trade association for America's tech industry — pitched the bill saying there's real opportunity for South Dakota to be a player in the industry. When asked about some disruption in Artificial Intelligence Data Centers in Minnesota, he said South Dakota could be a key player in filling industry holes from the state.
"The AWS project in Minnesota that was cancelled, a major AI [data center], was cancelled because the state had second thoughts about wanting to embrace at the state level. Every year they consider whether to extend or prolong its sales tax exemption. At the local level, we have to have utilities fully on board that they will have the capacity at the time we'll have it completed. And there were a number of factors, not just the backup generators, that contributed to more of a "go-slow" in Minnesota right now," DelBianco said. "If anything, that creates an opportunity for North Dakota, for South Dakota and for other states that want to step it up because you have an adequate power supply, we don't use any water to cool a modern data center, so I think that there are many sites in South Dakota that could be really attractive for the data centers that aren't going to be going to Minnesota. We could put them here in South Dakota."
However, concerns remained in the committee over the bill and its 50-year length on exemptions.
Sioux Falls Rep. Greg Jamison attempted to amend the bill and limit the exemption to 35-years, but the panel struck it down. Jamison's proposed amendment created a three-tiered system with varying time-lengths for exemptions dependent on the number of jobs and dollars a data center brought into the state. So, the more money and jobs a data center brings in, the higher the potential exemption.
DelBianco likened it to Indiana's sales tax exemption that required a number of employees and dollar figures to qualify.
"That's why Indiana's enjoying a real boom for data centers right now," DelBianco said.
However, lawmakers shot the Jamison amendment down as well as a move to advance the bill to the House floor without a recommendation. Instead, they moved forward with a motion to kill HB 1005. Rep. Jamison spoke on the motion, saying he hears concerns on the exemption length but supports the goal.
“This bill provides the opportunity to do something we’re not currently doing, and we absolutely have to diversify our revenue streams to our state or we will fade away,” Jamison told the committee.
Others had stronger words supporting the bill. Rep. Tim Reisch said it’s time for South Dakota to change its tune.
“Fifty of these data centers are being built a year. I think that’s amazing, 50 a year. Nobody’s coming to South Dakota. They’re not coming to South Dakota. They’re going to be built, but they’re not going to be built here," Reisch said. "South Dakota’s unwillingness to change ended up in chasing the Gevo aviation fuel from my district to North Dakota. I think it’s embarrassing. North Dakota is kicking our butt here. We need to open our aperture. We need to get in the game and start looking at things differently to attract industry.”
In addition to the length of the exemption, those against focused on a variety of reasons to oppose. Rep. Brandei Schaefbauer motioned to reject the bill.
“The respiratory health consequences to these data centers that we haven’t even taken into consideration, but we’re sure giving tax breaks away like candy,” Schaefbauer said.
Others focused their attention to promoting the “free market.” Rep. Jon Hansen said he doesn’t fundamentally believe the state should give tax breaks to large tech companies.
“I think if you look at over the last five years, if there’s been anything that’s attracted people to our state more than anything else it’s a reputation for freedom and the free market," Hansen said. "It wasn’t because they were coming here for special interest carveouts or big giveaways.”
Hansen also took issue in some of the data center companies' information remaining "confidential" when applying as a qualified business. He also had concerns over the secretary of the Department of Revenue making those determinations.
The bill died nine to three. However some committee members expressed hope the idea makes it to the House floor “in some shape or form” for a larger discussion.
