Virginia’s Data Centers Have Significant Economic Impact, Sensitivity to State Tax Regimes

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New research released by the Northern Virginia Technology Council highlights critical role of data centers in Virginia’s economy and need for continued tax incentives.

The Northern Virginia Technology Council (NVTC) today released a research report produced by Richmond-based Mangum Economics that shows that data centers are big business in Virginia.

The report, The Economic and Fiscal Contribution that Data Centers Make to Virginia, indicates that data centers in Virginia have a large overall economic impact. In 2014, the total statewide economic impact attributable to the data center industry was approximately 36,043 jobs, $2.7 billion in wages, $8.6 billion in economic output, and $298.9 million in state and local tax revenue. The report shows that the sector is broadly represented in many regions of the Commonwealth and has wide-ranging economic development potential. Northern Virginia is home to the largest concentration of private sector data center employment and locations in Virginia, and one of the largest in the U.S.

The report cautions that data centers, which generate significant state and local tax revenue in Virginia, are increasingly sensitive to states’ tax regimes. Virginia currently offers a sales tax exemption on equipment purchases to qualifying data centers but that exemption is scheduled to expire in 2020.

“Virginia’s data center industry contributes immensely to our regional and state economy," said NVTC President and CEO Bobbie Kilberg. "As we continue to diversify the Commonwealth’s economy, data center expansion and investment are a critical element, attracting private sector jobs and generating new state and local revenue.”

In addition to the above, the research showed, among other findings, that:

  •     Data centers have a big overall economic impact. In 2014, the total statewide economic impact attributable to the data center industry was approximately 36,043 jobs, $2.7 billion in wages, $8.6 billion in economic output, and $298.9 million in state and local tax revenue.
  •     The sector is broadly represented in many regions of the Commonwealth and has wide-ranging economic development potential. Northern Virginia is home to the largest concentration of private sector data center employment and locations in Virginia, and one of the largest in the U.S.
  •     Data centers are a high-performing industry which insulated some Virginia localities from the economic ”double dip” that the state experienced as a result, first of the ”Great Recession” of 2007-09, and then the federal sequester in 2013.
  •     Between the first quarter of 2014 and the first quarter of 2015, statewide employment in the data center industry grew 6.7 times faster than the norm across all industries. Additionally, statewide wages in this sector, already 140 percent higher than the statewide average wage in Virginia, grew 9.3 times faster than the norm across all industries in Virginia.
  •     Data centers generate significant tax revenue:

o    The data center industry is very capital-intensive and that translates into a disproportionate amount of property tax revenue, by far the largest source of revenue for Virginia localities. The data center sector provides approximately $9.50 in tax revenue to Loudoun County, and approximately $4.30 in tax revenue to Prince William County for every dollar in county services they require.
o    Additionally, the high wages in the industry have a disproportionate impact on state income tax revenue, by far the largest source of revenue for Virginia state government.

  •     The pool of highly skilled workers the data center industry employs also feeds the talent pipeline for other fast growing, high wage industries.
  •     Since 2009, economic development announcements by the Virginia Economic Development Partnership in Data Processing, Hosting, and Related Services have averaged $1.3 billion per year and reached a high of $2.0 billion in 2014. The sector represented 31.5 percent of total statewide investment announced in 2012, 44.4 percent of announced investment in 2013 to 47.2 percent in 2014.
  •     Data center industry investment decisions are increasingly sensitive to states’ tax regimes:

o    Virginia currently offers a sales tax exemption on equipment purchases to qualifying data centers (similar to the exemption it has provided the similarly capital-intensive manufacturing sector for many years), but that exemption is scheduled to expire in 2020.
o    When Virginia enacted its exemption in 2009, only seven other states offered such incentives. Today, over half of all states offer incentives for data centers. Seven of those 27 incentives were enacted in 2015 alone and most states now offer incentives that are more competitive than Virginia’s.

“Data centers continue to offer immense opportunities for Northern Virginia and the entire Commonwealth,” concluded Kilberg. “Maintaining Virginia’s incentives for this valuable industry will be critical to ensuring Virginia remains a top global destination for tomorrow’s technology companies.”

Visit bit.ly/DataCenterReport to read the full report. Sponsors of the report include DuPont Fabros Technology; Loudoun County, Virginia Department of Economic Development; Microsoft; Mid-Atlantic Broadband Communities Corporation; and QTS Inc (Quality Technology Services).

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The Northern Virginia Technology Council (NVTC) is the membership and trade association for the technology community in Northern Virginia. As the largest technology council in the nation, NVTC serves about 1,000 companies from all sectors of the technology industry, as well as service providers, universities, foreign embassies, nonprofit organizations and governmental agencies. Through its member companies, NVTC represents about 300,000 employees in the region. NVTC is recognized as the nation's leader in providing its technology community with networking and educational events; specialized services and benefits; public policy advocacy; branding of its region as a major global technology center; initiatives in targeted business sectors and in the international, entrepreneurship, workforce and education arenas; the NVTC Foundation, a 501(c)(3) nonprofit charity that supports the NVTC Veterans Employment Initiative and other priorities within Virginia's technology community; and The Entrepreneur Center @NVTC, which mentors new technology entrepreneurs. NVTC’s Data Center & Cloud Infrastructure Committee provides a clear, consistent, collective and compelling voice for promoting the interests of our growing data center, cloud and critical infrastructure community in an effort to contribute to the long-term growth and prosperity of the industry.Visit NVTC at http://www.nvtc.org.

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Sarah Jones
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