Tax breaks for data centers aim to attract jobs to areas of the country with high unemployment. Despite their evident shortcomings, they remain a popular choice for state legislatures—and it seems like a data center tax break arms race is under way. But states should tax data centers more to offset the strain they place on local infrastructure.

Data centers place massive burdens on infrastructure and local resources such as electricity and water, and artificial intelligence is set to increase those burdens exponentially. Exact details on data centers’ resource use can be difficult to find, but the small peeks we’ve had have been astonishing.

Alphabet Inc. data centers in The Dalles, Ore., used 355 million gallons of water in 2022. At an Environmental Protection Agency estimated 82 gallons of water used per day at home, that equates to the water use of nearly 12,000 individuals. In terms of electricity, data centers consume an estimated 1% to 2% of worldwide power usage, and that may rise as high as 4% by the end of this decade.

Evidence that data centers drive job creation simply isn’t there. The data we do have, while several years old, indicates they create few jobs and cost about $2 million for each they do manage to conjure up.

Data centers are much more energy-intensive than labor-intensive. Their resource usage may drive up resource costs and shift financial burdens to other resident businesses and individuals—both in the tax loss from the data center and the higher costs of electricity and water.

Tax breaks for data centers are a fortunately rare phenomenon—tax policy that is precisely wrong. They represent misguided state fiscal strategy, and the tide must be stemmed before more states succumb to the mistaken notion of “investing” in data centers with taxpayer money.

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—Andrew Leahey

Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social

An Amazon Web Services data center under construction in Stone Ridge, Va., on March 27, 2024.

Photographer: Nathan Howard/Bloomberg via Getty Images

Plante Moran’s Jessica Wargo explains Pillar Two compliance challenges in the US, noting that changing rules for GILTI and CAMT would help multinationals.

NFTC’s Anne Gordon details GILTI and Pillar Two differences, warning that failing to blend the two systems will hurt US multinationals.

Tax Foundation’s Alan Cole examines reluctance by some countries to enact Pillar Two rules, noting that complying with, fighting, or ignoring global minimum tax carries risks for multinationals.

EisnerAmper’s Gary Bingel examines voluntary disclosure agreements for state taxes, saying that they can be complicated by “gray areas.”

Texas A&M’s Michael Shaub examines new audit firm standards, saying that tone at the top and quality controls are among the PCAOB’s priorities.

Weil, Gotshal & Manges’ Devon Bodoh, Theo Agbi, and Carlos Parra review proposed rules for digital assets, saying that defining “broker” more narrowly could help staunch reporting mismatch risks.

K&L Gates’ Marty Pugh and Jim Goettsch explain the new risks when purchasing clean energy credits, noting that deal structuring, terms, and insurance can protect both sides in a transaction.

Royal Law Firm’s Priya Royal analyzes hurdles for business owners who invest in real estate overseas, discussing the potential impact on estate and income tax obligations.

DLA Piper’s Mike Patton analyzes Amount B of the global tax treaty, saying the OECD must allow administrative exemptions to preserve tax fairness.

Global tax experts Fahad Alturki and Daniel Witt say economies need to sync their tax policy as inflation, debt, and other fiscal pressures signal a long-term dip.

Legal experts Brian Carrozza, Courtney Hudson, and Megan Senese explain the keys to lateral partner retention and why firms need to ditch traditional levers to attract talent.

Troutman Pepper’s Linda Sanders and Dan Pulka share five ways law firms and in-house departments can drive value with client feedback.

Racial disparities discovered in the IRS’s taxpayer audit rates should prompt the agency to do more than tweak its algorithms and announce that the problem has been resolved, Andrew Leahey writes in his Technically Speaking column.

Open-sourcing the audit algorithms and disclosing audit rates across different demographic groups would provide necessary transparency and “an opportunity to engage in a feedback loop with researchers and watchdog groups,” Andrew argues.

Isreal Miller has joined Locke Lord’s Dallas office as a partner in its private wealth practice group.

Jacob Cork has joined law firm TLT as a partner on the trust and estates team in Birmingham, England.

Daniel Rinke has joined advisory, assurance, and tax firm CohnReznick LLP as principal in the international tax practice.

Caroline Lafourcade has joined Liskow as shareholder in New Orleans.

Guilhèm Becvort has joined White & Case as a partner in Luxembourg, specializing in international and Luxembourg corporate tax law.

Brent Howard has joined Miller & Martin PLLC as a member of its trusts, estates, and wealth management practice group.

Emmanuel Sala has joined Baker McKenzie’s North American tax practice as a partner in its Toronto office.

Nissim Cohen has joined advisory, assurance, and tax firm CohnReznick as tax partner in the firm’s New York office.

If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team.

• A dispute before the Washington Supreme Court about the scope of the state’s investment income deduction likely has wider-reaching implications than the courts realize, tax practitioners say.
• US multinational companies are engaging in what essentially amounts to a political game of chicken, dissolving their overseas holding companies and reshoring ownership of their subsidiaries to delay paying the new 15% global minimum tax—perhaps indefinitely.
• The IRS will continue its partnership with tax preparation companies to provide taxpayers with an additional option to file for free for another five years.
• A bill to ban a handful of California cities from cutting deals with some of the world’s largest retailers to share tax revenue from online sales failed to pass the state Senate.

The Space Needle stands over the skyline in Seattle, on March 13, 2022.

Photographer: John Moore/Getty Images

Tax Management International Journal

The Canadian federal government has announced numerous investment tax credits to attract and encourage capital investment in its clean energy sector, Osler, Hoskin & Harcourt’s Colena Der and Ilana Ludwin say.

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