Colocation Location, Why Taxes Matter

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All customers of colocation services assess the location of prospective data centers. Location matters when evaluating connectivity, power costs and distribution, climate, the likelihood of natural or man-made disaster, security, proximity to IT staff, setting (suburban, rural, urban) and other factors. The impact of tax incentives on colocation can have a substantial impact on the total cost of occupancy for data center customers.

The data center industry (like many industries) receive incentives from states, counties, cities and municipalities for investing the significant capital required to build a data center. Only 24 states currently have published incentives which can vary from sales tax, property tax, utility tax, and real estate tax. Incentive programs typically require a certain amount of capital investment and job creation. Some incentives are for only 5 years; others for 10 years or more.

In some cases, government incentives are focused on luring large scale data center operators because of the significant economic contribution of these data centers and how they enable and promote the digital infrastructure of the future. Georgia’s “Switch Bill” is an example. However, companies looking for retail colocation may not be able to take advantage of such tax breaks as customers.

The good news is that in some states, data center tenants can also take advantage of a qualifying data center operator’s tax exemptions. Forward thinking states recognize that by offering data center tenants tax benefits, they are supporting the economic impact of the data center beyond the design and construction phase. Customers of DC BLOX’s newly opened Birmingham data center qualify for beneficial tax treatment. There is paperwork and record-keeping required and the effort is worth it. Let’s look at the numbers.

DC BLOX-negotiated tax abatements in Birmingham are:

  • Sales and Use from 10% down to 1%
  • Roughly 50% reduction in property tax -from a millage rate of .0725 at 20% of market value to .0357
  • Abatements are for rolling 15-year periods

Assume that colocation computer equipment (including software) is depreciated on a straight line over 3-years. For a fully populated cabinet with compute, storage, network, firewall/load balancer, the table below illustrates how the savings accelerate the higher the cabinet value and number of cabinets deployed.

Birmingham: Three Year Tax Abatement Savings

If we change the assumption from a 3-year time horizon to 6-years with a 50% refresh after the initial period, the savings increase.

Birmingham: Six Year Tax Abatement Savings with Refresh

Summary: Colocation and Taxes

Organizations that are looking for colocation should vet the common requirements for location and seek a data center provider that has secured long-term tax incentives that can be passed on to customers.

The catch … finding such a facility in growing mid-markets is a challenge.

To take advantage of DC BLOX’s brand new, Tier 3-rated data center in Birmingham, Alabama and leverage tax savings that are superior to surrounding states, call DC BLOX at 844-4DCBLOX or visit dcblox.com.

About DC BLOX
DC BLOX is a multi-tenant data center provider delivering the infrastructure and connectivity essential to power today’s digital business. DC BLOX’s software-defined network services enable access to a wealth of providers, partners and platforms to businesses across the Southeast. DC BLOX’s connected data centers are in Atlanta, GA; Huntsville, AL; Chattanooga, TN, and Birmingham, AL. For more information, please visit www.dcblox.com, call +1. 877.590.1684, and connect with DC BLOX on Twitter, LinkedIn, Google+ and Facebook.
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