PRESIDENT'S MESSAGE

Data centres are an increasingly important part of the real property world and a recent article from the Tax Foundation provides some interesting information about data centres in the USA and, inter alia, the way they are treated for various tax purposes. Here are some selected extracts from the article that I hope will be of interest.

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The key findings of the research are:
• Data centers’ state and local tax burdens are heavily dependent upon policy choices surrounding sales and property taxation of data center equipment.
• Servers and other data center equipment are exempt from sales tax in most states, consistent with the principle of avoiding the taxation of business inputs, but the exemption is often contingent upon meeting economic development targets.

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• Property taxes currently generate 70 percent of all local tax revenue, some or all of which would have to be replaced with other taxes under property tax repeal.
• Replacing the property tax with newly granted local taxing authority is exceedingly difficult, because local sales and income tax bases vary widely across jurisdictions; there may, for instance, be no feasible sales tax rate by which an agricultural county or bedroom community could replace its property tax revenue.
• Backfilling forgone local property tax revenue through new state taxes is difficult because it dramatically shifts overall tax burdens, undermines local accountability, and cannot easily adjust for changing population mixes.
• All revenue alternatives are less conducive to economic growth than the existing property tax regime, but some transfer regimes are sharply degrowth.