Skyline of Columbus, Ohio, from the Library of Congress Collection, Licensed under CC
Ohio is caught up in major discussions about data centers and that has led to a dispute over a well-established sales tax exemption.
For more than a decade, Ohio has allowed data center builders to partially or fully exempt their equipment purchases from the sales tax. This is understandably a way to attract development and investment as building these projects involves purchasing a great deal of materials and equipment.
This exemption was recently repealed through a provision in the state budget last year, but Governor Mike DeWine vetoed this provision. Yet, more recently, the governor has become open to a “pause” in the exemption. Now the legislature is considering legislation to limit or repeal the tax credit.
This exemption existed long before A.I., but it is apparently getting caught up in the fervor over A.I. and data centers. Repealing it would be a mistake.
Removing a sales tax exemption, with no corresponding tax reduction, is an effective tax increase.
The state’s think tank, the Buckeye Institute explains, “The exemption is similar to the state’s long-standing exemption for manufacturers and reduces the cost of capital investment without distorting local tax bases … This non-discriminatory exemption avoids tax pyramids on business inputs that would otherwise ultimately raise end-user prices for AI subscriptions, streaming video services, and cloud hosting for electronic records.”
Further, investment at a massive scale, including creating jobs, is a requirement to receive the sales tax exemption in the first place. Companies must invest $100 million in just three years and have a payroll over $1.5 million.
Ohio government is not ‘losing money’ as a left wing outfit recently claimed … Dollars are being kept in the private sector to be put to good use generating economic activity – which in turn is still generating a great deal of state and local tax revenue.
Data centers in Ohio contributed 24,000 direct jobs, 100,000 total employment, $ 8 billion in labor income, $ 14 billion in GDP, and $ 1 billion in tax contributions to state and local governments, according to public testimony from trade group NetChoice.
Companies have planned around this decades-old sales tax exemption and will suddenly be hit with a higher tax burden – repeal will hurt their workers and their ability to invest in Ohio. It is difficult to see this sudden shift on the data center sales tax exemption as anything but a rug pull.
The sales tax exemption should not be lost due to a moral panic, often influenced by foreign social media campaigns. Ohio lawmakers have done great work over recent years to make the state more attractive to businesses – including leading the way on energy policies that make electricity more affordable and accessible. The state is benefitting from these efforts. Repealing this sales tax exemption, especially without an offset, would pull the state in the wrong direction.
