Tax breaks for data center operators could soon be stripped from Washington state law. 

On March 7, the House Finance Committee voted 8 to 6 to approve Senate Bill 6231. The bill next awaits a House floor vote. 

As it stands, data center operators in most Washington counties do not pay the 6.5% sales tax on server equipment. That equipment is typically replaced every three to five years, and current law exempts sales tax on purchasing new or replacing old server equipment. It also doesn’t apply sales tax to labor hired to install the equipment. 

The proposal would eliminate a portion of those tax exemptions: the break for replacing or refurbishing older server equipment. It would leave in place the exemption for purchasing new equipment. 

Big tech companies and unionized electrical workers opposed the bill, arguing data centers have been economic powerhouses that help rural economies. 

Supporters of the bill say it’s time to stop exempting major corporations from taxes.

Bill sponsor Sen. Noel Frame, D-Seattle, asked lawmakers if the state should continue offering the tax preference to companies or raise revenue to help the state’s stretched budget. 

“That’s the policy choice in front of us,” she said during a House Finance Committee hearing on March 4.

The proposal, requested by Gov. Bob Ferguson, a Democrat, is estimated to bring in over $140 million for the state budget every two years if it takes effect. 

Washington is already among the top 10 states with the highest number of data centers. Central Washington, in particular, with its cheap hydroelectric power coupled with the state’s tax incentives, has seen a threefold increase in data center leasing in 2024, according to a report a state AI task force released in December. 

“We in Washington have this competitive advantage right now because we have clean hydroelectric power, we currently have no income tax,” said Rep. Cyndy Jacobsen, R-Puyallup, during the House Finance Committee’s meeting March 7, ahead of the vote. “We need these data centers.”

The Department of Revenue offers only six tax exemption certificates to data center operators in urban counties every year, but there is no limit on exemptions in rural counties. 

Rep. April Berg, D-Mill Creek, sponsored a 2022 bill that expanded the data center tax exemptions to urban counties. Berg chairs the House Finance Committee and voted “yes” on the proposal, which would essentially cancel her previous bill. 

“I can’t say I support” this new proposal, “but I do understand the need for it,” Berg told the Standard, citing the state’s budget crunch. 

If the measure becomes law, data center operators would have until July 1 to take advantage of sales tax exemptions.

Rep. Ed Orcutt, R-Kalama, the top Republican on House Finance, voted “no” on the measure.

“I think that’s extremely unfair,” he said during the March 7 meeting. “It’s going to send shockwaves to anyone who’s looking to expand or relocate here.”

Orcutt is also concerned that contracts between data centers and electricians to install equipment might have to be renegotiated if the tax break ends. 

Another committee member, Rep. Shaun Scott, a socialist-Democrat from Seattle, strongly supports the rollback.

Data centers are doing “terrible things for the environment” and “driving up the cost of utilities for working families,” Scott told the Standard.

“Tax preferences that we extend should go towards enterprises and endeavors that are good for the people of our state,” he added. “Right now, there are real concerns about whether or not data centers fit that bill.”

This story is republished from the Washington State Standard, a nonprofit, nonpartisan news outlet that provides original reporting, analysis and commentary on Washington state government and politics.