Anti-Censorship Bills Threaten Data Center Tax Breaks, Could Spark Legal Challenges

In the hopes of luring tech business, many states have rolled out tax incentives for data centers. But in some conservative states, an outcry over what lawmakers consider censorship by tech companies could undermine that.

State legislators in Oklahoma and Alabama have introduced bills that, if signed into law, would rescind tax abatements or other incentives for companies that engage in censorship, according to the laws’ proponents. With millions of dollars in tax breaks potentially on the line, enactment of the bills could set the stage for legal challenges.  

The bills would ensnare companies like Facebook, Google and Amazon, each of which has drawn scrutiny for removing accounts or content linked with conservative politicians or provocateurs who violated its terms of use. Those companies are also among the most active data center investors, pouring billions into massive campuses across the U.S. According to Synergy Research Group, Google and Amazon opened the most data centers of any company in the world last year, and Facebook was also particularly active.

“I don’t believe that we should spend tax dollars on recruiting companies that don’t protect free speech. You’ve seen it on Twitter. You’ve seen it on Facebook and other platforms,” Alabama state Rep. Chip Brown, R-Hollinger’s Island, said in a recent interview with Alabama Public Television. Brown authored the bill, HB213, dubbing it the “Anti-Censorship Act," and attracted 10 co-sponsors in the Republican-dominated Alabama state legislature.

In Oklahoma, SB 1019 would similarly make companies ineligible for tax abatements “for any year in which they have engaged in censorship activities,” also imposing a fine of $10K per infraction. There’s little doubt that other states could introduce similar bills in some form, according to Julio Gonzalez, CEO of Engineered Tax Services and an advisor on tax policy.

“I believe Oklahoma and Alabama would have the ability to get these laws passed without running afoul of First Amendment laws,” Gonzales said. “Certainly, other states will follow, as Gov. Ron DeSantis has already discussed similar laws in Florida.”

Along with other Florida lawmakers, DeSantis is pushing a proposal that would impose hefty fines on companies that “deplatform,” or suspend the accounts, of political office seekers. Critics of that particular proposal say that the cash penalties violate the companies’ rights under federal law, which grants broad immunity to internet platforms in addition to their constitutional rights to free speech.

Brown told Bisnow in a recent interview that he’d fielded phone calls from lawmakers in other states considering similar anti-censorship bills, and that he hoped Alabama’s HB213 was “the start of a bigger movement."

For tech companies, millions of dollars’ worth of tax incentives are potentially on the line.

In Oklahoma, companies in computer services or data processing are currently granted a sales tax exemption for equipment. Alabama offers up to 30 years of tax abatements for data centers that invest at least $400M and create at least 20 jobs with a minimum annual salary of $40K. In Oklahoma, companies in computer services or data processing are granted a sales tax exemption for equipment — a highly valuable benefit for data centers, which rely on a high density of servers and other machinery.

Facebook, Google and other tech firms have expanded their data center footprints in both Alabama and Oklahoma in recent years.

Facebook, for example, is reportedly pursuing a major data center expansion in Huntsville, Alabama. That expansion, reported by AL.com, adds to an existing data center development that represents a total investment of roughly $1.5B, according to a Huntsville economic development group. The data center facility is expected to generate 100 permanent, well-paying jobs in the area. Facebook declined to comment on the anti-censorship bills in Alabama and Oklahoma.

Oklahoma’s SB 1019 passed the Senate Judiciary Committee on a 5-3 vote. In Alabama, HB213 has been referred to the House Judiciary Committee for review.

If approved in their current form, the bills could spark a legal challenge by affected companies, Gonzales said.

“I think some of these companies are going to say, ‘[we’re] already here based on these incentives, and now you’re basically removing those incentives,’” he added. “They could try to go to the state Supreme Court." Any such legal challenge may not have a path to success in the U.S. Supreme Court, he said.

In the meantime, other states are opening the door wider to data center investment. Just this week, Connecticut Gov. Ned Lamont signed a law providing long-term tax breaks to data centers. Lawmakers in Kentucky advanced a similar bill.

It's common for companies to make decisions on where to locate based on the tax environment, Gonzalez said. Tech companies facing a sudden revocation of tax breaks could easily do the same.

"I think it would be a big decision factor. There's no doubt about it," he said.