Developers Call For Tax Breaks As Rocky Mountain Data Center Boom Skips Colorado

Colorado traces its founding to a gold rush more than 150 years ago. But today, the state is on the sidelines of a data center gold rush that is in full swing elsewhere in the Rockies.

Developers say a tax break worth millions to Big Tech tenants would trigger a flood of digital prospectors to the Centennial State.

Data center development is booming in the Rocky Mountains, with the lion’s share of new construction rising in locations that were previously well off the digital infrastructure map. 

The Salt Lake City colocation market has more than doubled since 2020, with a development pipeline north of 1 gigawatt, according to JLL.

And the Utah market is attracting hyperscale campuses as large as 4 GW from tech giants like Microsoft, Google and Meta 

A similar surge of hyperscale development is underway across Wyoming, a state few would have imagined as a data center hotbed just five years ago but now has multiple 1 GW-plus data center campuses moving forward. 

Yet this wave of hyperscale build-out across the Rockies — extending into Idaho and even north of the border into Calgary, Alberta — has largely skipped Colorado.

Despite Denver's status as the region’s traditional data center and telecommunications hub, Colorado has no large-scale cloud provider campuses under construction. Its data center development pipeline, almost all smaller colocation facilities, is less than a third of Salt Lake City’s.  

Industry leaders speaking Aug. 21 at Bisnow’s DICE: Rockies event pointed to a single factor pushing data centers elsewhere in the region: Colorado’s lack of a key tax break that is considered a prerequisite for hyperscale development. 

More than 30 states — including Utah, Wyoming and Idaho — offer sales tax exemptions on the billions of dollars of computing equipment housed in data centers. These tax breaks can be worth hundreds of millions of dollars per facility for Big Tech tenants, savings that lead hyperscalers to avoid markets without such incentives. 

All things being equal, developers and tenants would prefer to be in Colorado compared to nearby states, according to David Dunn, chief operating officer of Colorado-based H5 Data Centers. But until targeted tax incentives are in place, they will continue to choose other markets.

“We see Wyoming and we see Utah crushing us,” Dunn said at the DICE event, held at The Westin Denver Downtown.

“It’s all about the sales tax exemption. If we passed that, you would have literally 2 GW being built in Colorado tomorrow.”

Colorado’s stagnation is a source of frustration for Dunn and other local executives who spoke at the event. They said the state should be primed to be one of the country’s major digital infrastructure hubs on par with top growth markets like Atlanta and Phoenix. 

Denver is a hub of data center leadership, with seven of the world’s largest developers and operators headquartered in the area, including CoreSite, Vantage Data Centers, Flexential and Stack Infrastructure.

DICE speakers said there are many reasons Colorado should be tantalizing to data center developers and tenants. The market offers robust optical fiber infrastructure, access to long-haul fiber routes and proximity to the state’s ecosystem of technology and artificial intelligence firms.

Colorado also has the second-lowest electricity costs in the U.S., according to JLL.

But its biggest selling point may be that it has power at all, as regional grids across the U.S. are overwhelmed by demand from data centers, leading developers to wait as long as seven years for grid connection in most primary markets. Colorado offers opportunities to connect sites to power faster than in other markets, executives said, with a utility in Xcel Energy that has proactively courted the industry. 

Colorado also offers fertile territory for developers looking to build data centers that generate their own power on-site or acquire it through “behind-the-meter” deals with owners of wind farms, solar arrays or natural gas power plants. 

These power solutions are a growing part of the hyperscale data center playbook as companies try to bring facilities to market quickly amid power constraints, driving a shift toward markets like Texas that have access to natural gas resources and renewable energy generation.

Colorado has the resources to be highly competitive in enabling these creative power solutions, Cologix Chief Business Officer Tara Risser said. 

“We have so much natural gas here — we have a great combination in this state of renewable energy capabilities but also natural gas and natural resources,” Risser said. “It does seem like it would be a very obvious location to have data centers grow and thrive.”

Yet hyperscale data centers aren't growing and thriving in the state. Risser said that although Cologix is based in Denver, the firm doesn't operate a single facility in the Colorado market. 

While many U.S. markets have doubled or tripled in size since 2020, Denver hasn't, according to JLL.

What growth the market has experienced has been incremental. Denver and Colorado Springs collectively have 36 MW of capacity under construction, with the pipeline consisting almost entirely of smaller colocation build-outs and expansions from providers like CoreSite and Flexential. 

Colorado has seen nothing of the gigawatt-scale development happening elsewhere. A QTS development underway in Aurora totaling 177 MW will be the state’s largest data center by far. 

“Demand for us is driven locally,” said Craig Cook, senior vice president for solutions architecture and engineering at Flexential, which is building a 22 MW facility in the Denver suburb of Parker. 

“But people are going wherever the capacity is. We’re seeing all these other states picking up that capacity because they have a more business-friendly climate.”

Cook, Risser and Dunn said the lack of a data center tax exemption is by far the largest factor keeping hyperscale development out of Colorado. According to Dunn, the passage of a statewide data center sales tax exemption would lead to $100B in data center investment within two years, largely centered in the Front Range region from Pueblo to Fort Collins. 

This estimate is supported by the 5.8 GW of power requests from data center developers in Xcel Energy’s interconnection queue — largely speculative applications that would only proceed should the development landscape in the state change.

The scale at which developers are positioning themselves to pounce in the Colorado market if incentives are enacted hints at the speed at which the state could experience the kind of explosive growth seen in markets like Atlanta and Phoenix over the past five years. 

“It all just comes back to the right incentives,” Risser said. “It's absolutely possible.”

Colorado legislators have filed two separate bills since the start of 2024 seeking to create a sales tax exemption for data centers. The most recent, Senate Bill 25-280, failed to pass in the most recent legislative session and attracted opposition from a range of environmental groups.

Opponents of the bill painted the tax incentives as a corporate handout to the world’s wealthiest companies that would derail the state’s climate goals and raise electricity prices. Some also rejected the idea that tax breaks are necessary to attract data centers.

“Data centers are coming to our state no matter what,” the Southwest Energy Efficiency Project’s Justin Brant told lawmakers in April, according to Colorado Newsline. 

But developers at DICE: Rockies and other industry analysts said this simply isn’t true. The question of whether a data center sales tax exemption is the best policy for Colorado can be debated, Dunn said, but the past 24 months have provided evidence that without these tax breaks, hyperscale developers will largely continue to build elsewhere. 

“Politically, it's a little bit of a corporate handout to massive hyperscalers who probably don't need it,” he said. “But they’ll go to other states around us.”