Interesting development out of Lansing, where the state legislature voted to exempt data center equipment from state sales taxes in order to lure a big data center company to metro Grand Rapids.
The tax breaks will apply to all data centers, but the action was requested by Switch, a Nevada-based company that wants to use the old Steelcase "pyramid" building near Grand Rapids as the hub for a new 2 million-square-foot campus.
The company, which estimates the data center project will spur $5 billion in investment and create at least 1,000 jobs over 10 years, was quick to praise Tuesday's vote and thank legislative leaders, the Snyder administration and various supporters.
On one level, the tax break costs the state next to nothing. Were it not for the deal, the facility likely would have gone elsewhere and they'd get zero sales tax revenue from the non-existent data center's hardware. The only net loss would be giving existing data centers a tax break. A net gain of a posited 1000 jobs and the tax revenue (not to mention overall well-being of the Grand Rapids area) should, in theory, overwhelm the lost sales tax revenue from existing firms.
However, the downside is that Michigan is playing an industrial policy game, favoring one industry over all the others. That's normally a dicey proposition, as it puts legislatures in the role of managing the local economy. Markets tend to do a better job of picking winners than politicians do.
Also, having the legislature and governor in charge of the industrial policy honey-pot has corporate interests and union interests making a bee-line to Lansing, campaign donation checks in hand, seeing what they can do to get their industries some of that sugar. That's going to make pay-for-play politics more of a temptation.
The M-Live piece noted opposition from both sides of aisle, from both a Republican questioning that industrial policy shtick and a Democrat who noted that data center equipment is now on a par with food and prescriptions-""One of these things is not like the others".
If letting companies buy equipment sales-tax free is good for data centers, might it be good for other industries? Might it be good for business in general? If the answer is yes, the whole idea of applying sales tax to equipment might need to be scrapped.
It might not be good for jobs across the board, as some jobs might wind up being automated while others might benefit from marginally cheaper capital.