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Data Center Tax Breaks May Be In Crosshairs In Major Pacific Northwest Market

The Oregon Senate chamber

Officials in Oregon may re-examine data center tax incentives that have helped make the state a digital infrastructure hub for cloud and social media giants.

Oregon’s state-level tax incentives have helped drive a data center development boom across the state that has seen rural communities become hubs for hyperscale campuses. But in the wake of allegations that some local officials wielded these tax breaks as bargaining chips for personal gain, key Oregon lawmakers are suggesting that the primary incentive, the Enterprise Zone program, needs to be re-evaluated, The Oregonian reports.

Limits on tax breaks or changes to how they are administered could have broad implications for data center developers and operators who continue to build across the state.

“It’s not just the question of whether we’re making the best deal for our tax dollars, it’s whether we’re also securing the investments and job growth we need to move our state forward,” Betsy Johnson, a longtime Oregon state senator and current candidate for governor, told The Oregonian. 

Oregon’s Enterprise Zone program dates back to the 1980s, when it was created with the intention of attracting manufacturing to the state’s rural communities. And while there was no such thing as a data center when these enterprise zones were created, data centers now account for around 75% of all tax breaks granted through the program. Cloud services and social media giants have saved around $650M in property taxes through enterprise zones, The Oregonian reports.

Yet a scandal surrounding the development of an Amazon data center in rural Morrow County has put a spotlight on these decades-old incentives and may make them a target for state lawmakers.

While it is a state program, the ability to grant millions of dollars in tax breaks through enterprise zones sits largely with town and county officials. According to The Oregonian, Morrow County officials are facing allegations that they used these tax incentives to entice Amazon to build four data centers in the county while simultaneously purchasing a local fiber company that would exclusively provide connectivity services for the hyperscale facility.  

A number of key Oregon politicians are now suggesting the state needs to provide additional oversight to these tax deals. While no specific legislation has been filed, multiple lawmakers are proposing more state-level oversight of the program and limits on the size of tax breaks, as well as additional support and resources for small communities that are negotiating with major data center developers or tech companies on development deals.

The underlying sentiment, according to The Oregonian, is that rural communities have been getting bad deals from the data center industry. 

“Enterprise zones could use more oversight and technical support from the state to make sure local communities realize the maximum benefit from these arrangements with large corporations,” Tina Kotek, formerly Oregon’s speaker of the House and now the Democrats’ nominee for governor, told the publication. 

Any shift in Oregon’s tax incentives would represent a significant change for data center developers in a state that has become one of the industry’s most important regional hubs.

Hillsboro has become the dominant data center market for the Pacific Northwest, with 564 megawatts of existing inventory, and it accounted for around 85% of the region’s absorption in the first half of this year, according to a JLL report released last month. Nearly all occupants in the Hillsboro market are from the tech sector, mainly hyperscale cloud providers. Tech giants have also built out hyperscale campuses in other small communities across the state, from Apple and Facebook facilities in the central Oregon town of Prineville to a massive Google complex on the Columbia River in The Dalles.  

Related Topics: JLL, Oregon, Amazon, Hillsboro, Oregon