QTS, a company with more than 90 data centers across the country, is constructing a $1 billion center off Hands Mill Highway (S.C. Highway 274) in unincorporated York County near Lake Wylie. (Photo courtesy of Terry Roueche)
COLUMBIA — Revised calculations show sales tax breaks available to data centers in South Carolina aren’t nearly as impactful as originally thought — at least not yet.
Sales tax exemptions the state provides for the rows of computers and servers purchased and housed within these high-tech centers, as well as the electricity used to power them, amounted to $828,000 for the fiscal year that ended last June, according to corrected information from the state’s tax agency.
The numbers for exemptions are reported in a lump sum only. The state Department of Revenue does not track how much is related to equipment and how much comes from electricity sales.
The exemptions to the state’s 6% sales tax available to data centers came up during Senate budget debate last week, as Sen. Chip Campsen, R-Isle of Palms, unsuccessfully sought a one-year suspension.
He cited numbers from the state Revenue and Fiscal Affairs Office, which the SC Daily Gazette also used. Its calculations were based on numbers from the Department of Revenue.
But in providing the dollar amount of data centers’ exempt purchases and electricity for the year ending June 30, the Department of Revenue “mistakenly used billion instead of million,” the agency said in an email this week to the SC Daily Gazette.
The extra three zeroes meant the tax break was reported as $828 million instead of $828,000.
“That’s a pretty big miss,” Campsen told the SC Daily Gazette on Tuesday. “It means the magnitude of the impact is not nearly as severe as the erroneous numbers indicated.”
SC data centers received $828K in tax breaks on electricity and computer purchases last year
The impact of the exemptions for data centers has not previously been published in annual reports by the state’s fiscal analysts due to the small number of companies using them.
Six years ago, no companies claimed exemptions. Only a handful of companies have used them since, according to the Department of Revenue.
But as more data centers — particularly those developed by global tech giants and deemed essential to advancements in artificial intelligence — become operational, those exemptions could grow significantly, Campsen said.
“There’s no question about that, given the trajectory we’re on, that that will happen,” he said.
The state has a long list of sales tax exemptions, including fertilizer and farm machinery, textbooks, prescription medication, residential electricity, and newspapers.
“This has the potential of being the largest (exemption) in the state once more and more data centers get online,” Campsen said. “It will end up being a massive number.”
Meanwhile, legislation setting standards for how and where data centers are built in the Palmetto State, as well as how their power needs are paid for, is headed to the Senate floor.
A proposal, introduced by Sen. Tom Davis, R-Beaufort, had been stalled in committee. The Senate Agriculture and Natural Resources Committee voted unanimously Tuesday to advance that legislation.
Still, with just eight days left on the legislative calendar, senators acknowledge passage is ultimately unlikely.
“While it’s possible that this will get done, the probability of that is not great,” said Sen. Jason Elliott, R-Greenville.
The bill sets up an office within the state Department of Environmental Services to permit these centers, evaluating them for water use, noise and proximity to environmentally sensitive areas and holding them to areas that can handle their demands for resources.
The bill also breaks data centers into three tiers based on the amount of power they use — less than 10 megawatts, less than 50 megawatts and 51 megawatts or higher. The environmental agency has between 60 and 120 days to permit these centers, based on how large they are.
When it comes to power, that remains the domain of state utility regulators. The Public Service Commission will have to sign off on regulated power company’s arrangements with data centers, ensuring the centers alone are covering the cost of producing and transmitting the power they need.
Sen. Michael Johnson, who chaired the subcommittee that heard testimony on the bill over several weeks, said more work on the proposal would need to take place on the floor. The Tega Cay Republican predicts amendments would need to be debated over several days.
And the House has yet to discuss the issue.
“We just ran out of time in this calendar year,” Johnson said.
Courtesy of South Carolina Daily Gazette
