Editorial: Michigan should fix its tax code to attract data center jobs
The $5 billion data center proposed for the Grand Rapids area gives Michigan another opportunity to make its tax policy competitive for attracting jobs and investment.
Nevada-based Switch says it will build the largest data center campus in the eastern United States if Michigan makes critical changes to how it taxes such technology businesses.
Switch wants to fill the empty pyramid-shaped Steelcase building with 1,000 employees and billions of dollars of computing equipment that will store and process data for some of the world’s largest corporations. The company also plans additional construction on the site.
What makes Michigan appealing, says Adam Kramer, executive vice president of strategy for Switch, is the available building, the fact that it is outside earthquake and hurricane zones, has a reliable supply of electrical power, a fiber data infrastructure and the Grand Rapids airport.
And its executives say they really like Grand Rapids.
“We were blown away by the community,” Kramer says. “We believe it will be very attractive for our clients, who will be locating workers here.”
What doesn’t appeal to them? A tax policy that Kramer says is not competitive for the data center industry, a fast growing segment.
Most of Michigan’s neighbors, Kramer says, do not charge companies like Switch a sales and use tax on computing equipment, nor do they apply the personal property tax to the equipment once it’s installed. Michigan does.
And for a company like Switch, which plans a massive investment in such equipment, that could amount to $300 million over 10 years. Even the allure of Lake Michigan can’t overcome that competitive handicap.
“For a company making a sizable investment, that is a non-starter,” Kramer says.
Gov. Rick Snyder has a very tight policy in regards to attracting jobs with tax breaks and credits. It’s the right strategy. A tax code should be universally attractive and not bent on a company by company basis.
That approach is what is busting Michigan’s current budget, as businesses that were awarded breaks years ago are now cashing them in.
So Snyder should not approve a special deal for Switch, even though its investment in Michigan will be twice as large in terms of dollars than construction of the new Detroit River bridge.
What he should do is fix the tax code for Switch and all businesses like it. Bills pending in the Legislature that could be voted on as early as Dec. 11 would do just that.
Kramer contends that if Michigan lifts the sales, use and personal property tax on data centers, it would trigger an influx of those jobs to the state. He anticipates that companies that do business with Switch will locate operations here once the center is built.
The Snyder administration says it wants to examine the tax code and make adjustments to accommodate Switch and other data center companies, without making the exemption so broad it creates a revenue crunch.
But as Snyder knows from recent experience in Michigan, tax reductions that draw jobs and investment increase tax revenues. The employees hired by Switch and other companies in the industry would pay income taxes, and the company would pay the corporate income tax and other levies.
Other states have already recognized the benefits of not punishing tech companies for making investments in equipment. Michigan should do the same.