SW Va. aims to attract data centers via regional tax pact

As part of an effort to entice data centers to locate in the region, Southwest Virginia leaders announced Tuesday a joint agreement to set what will be Virginia’s lowest regional property tax rate on data center equipment.

The localities comprising the Lonesome Pine Regional Industrial Facilities Authority — Dickenson, Lee, Scott and Wise counties and Norton  — have entered into an agreement to each establish a tax rate of 24 cents per $100 on data center equipment. By comparison, Henrico County slashed its data center equipment tax rate to 40 cents on every $100 in March 2017 in order to attract the $1.75 billion Facebook data center, which opened last year at the county’s White Oak Technology Park in Sandston. At the time, Henrico’s was the lowest such tax rate in the state.

Now, through its Project Oasis initiative, the region hopes to leverage the area’s underground water in former coal mines to provide free geothermal cooling as a significant savings tool for data centers, which typically rack up high HVAC utility and maintenance bills to keep equipment from overheating. The block tax rate is intended as an additional incentive to the region’s offer of available and cheap land, geothermal cooling and workforce readiness and development.

According to the October 2020 Project Oasis study commissioned by InvestSWVA, the region is well-positioned for data centers. The study states that one large data center could result in more than 2,000 jobs and $50 million in annual economic activity for the region.

That same study states that six sites in the area have met the general criteria to locate a large, 36-megawatt hyperscale data center, and that four additional sites could be suitable for a smaller data center of up to 10 megawatts. Two sites have geothermal cooling opportunities through the utilization of 51-degree water contained in pools on the mining properties. One additional site has underground space that provides a consistent 55-degree temperature.

Tuesday’s announcement builds upon the Virginia General Assembly’s passage last week of Senate Bill 1423, which reduces the job creation requirement necessary for data centers to qualify for the retail sales and use tax exemption in a distressed locality from 25 to 10 jobs. The bill also lowers the new capital investment threshold from $150 million to $70 million.

Speaking during a virtual news conference Tuesday, Del. Terry Kilgore, R-Gate City, said that these new incentives will help attract more data centers like the existing Mineral Gap Data Center Campus in Wise, where Ashburn-based DP Facilities has a highly secure data center for government and health care clients. “We’re not reinventing the wheel,” Kilgore said. “We’re just building on our success.”

Kilgore and other regional leaders participating in the news conference said that while the reduced income tax rate would help attract data centers, localities will still reap the benefit of real estate taxes. Project Oasis’ projected model data center would involve a $464.1 million economic development investment, with an equipment cost of $201.6 million and a building cost of $262.5 million.

As for a potential local workforce, R. Kent Hill, managing principal of Richmond-based OnPoint Development Strategies, said that students from Mountain Empire Community College in Big Stone Gap are trained with adaptable skill sets that could be utilized by data center employers.

“If we were to get a large data center to select [a site] in the region, they would have a custom-tailored workforce or training program that would hit the road fairly quickly,” Hill said, noting that some data centers jobs have six-figure salaries.

Hill added that each of the sites under consideration has been examined for viability, including for power and connectivity capabilities. Fiber-optic internet either already exists at the locations or could be extended “fairly easily.”

As for the block tax rate agreed to by the localities, final action will take place this spring when they formally adopt the terms of the memorandum of understanding through their annual budgetary process.

Subscribe to Virginia Business.

Get our daily e-newsletter.