LANSING – Michigan would see at least 1,000 new jobs, a more diversified economy and a level playing field encouraging data centers to invest in the state if exemptions for certain personal property from sales, use and property taxes are passed by the Legislature, a representative of Switch, a company looking to create its eastern campus near Grand Rapids, told the House Tax Policy Committee on Tuesday.
Switch’s take it or leave it stance – its officials have said the company will not come to Michigan without the tax exemptions – are stirring the first signs of discontent. The Michigan Chamber of Commerce voiced concerns, and the Tax Policy Committee adopted substitutes to the bills Tuesday to assuage other criticisms.
Jason Mendenhall, the executive vice president of cloud at Switch, made the company’s case for HB 5074, HB 5075 and HB 5076 to the committee, saying neighboring states provide tax breaks for data centers. He said Michigan wasn’t even a contender until the CEO of the company saw the former Steelcase pyramid building, where it would be housed and then fell in love with the Grand Rapids area.
The bills would make personal property, like servers and other computer equipment, of data centers, like Switch, exempt from personal property, use and sales taxes. Under substitutes adopted Tuesday there would be a 20-year sunset on the exemptions and further clarifications were made to ensure it is personal property taxes, not real property.
All data centers would receive the tax exemptions under the House substitutes.
The committee did not vote on the bills, but is scheduled to meet again Wednesday. Rep. Jeff Farrington (R-Utica), chair of the committee, said the panel would report the bills if it had the votes. As of Tuesday afternoon, he said he was not sure if there was enough support to report the legislation to the House floor.
The Senate Michigan Competitiveness Committee is also taking up similar legislation at 8:30 a.m. Wednesday.
Senate Majority Leader Arlan Meekhof (R-West Olive) said the bills require “a very open discussion.”
“Somebody talking about investing $5 billion in your state is kind of a big deal. We should review this in Senator Shirkey’s committee, and I think we’ll find a way to encourage these new types of ventures in our state,” he said. “There are new technologies, new things that we should figure out where Michigan plays a greater role, and I hope we can do that.”
Asked if the bills were picking winners and losers, Meekhof said, “We’ve spent a long time trying not to do that, so I would say broad-based tax policy is probably best.”
But he did not elaborate on whether the legislation could, for instance, be expanded to all data centers, saying many of the issues and questions are expected to be worked out in committee.
Governor Rick Snyder has been mostly quiet on the pending legislation, but MLive reported Snyder said during a Grand Rapids stop Tuesday that he would like to see guaranteed jobs associated with the project. Snyder said he expects his concerns to be addressed during the legislative debate, MLive reported.
Tricia Kinley, senior director of tax and regulatory reform with the Michigan Chamber of Commerce, said the business group would love to see Switch come to the state, but still has concerns.
For example, she said her members have long been concerned about being taxed by the Department of Treasury on software services that are not taxable. She said a recent Court of Appeals case agreed – after those companies went to court – that the services were not taxable.
“These companies were forced to litigate and now they are vindicated,” Kinley said. “Now we see the state is about to throw a very lucrative tax package for the equipment. It strikes us as quite unfair.”
She said they also agree with Snyder that jobs should be guaranteed and there should be other accountability measures included with the exemptions.
Kinley said the group will continue to point out the flaws in the package, but they are concerned at the speed at which it may move. She said the bills are not ready for “prime time.”
The 1,000 jobs and $5 billion investments cited by Switch Tuesday are conservative estimates, Mendenhall said.
Rep. Robert VerHeulen (R-Walker), a bill sponsor, said the state currently is not collecting any tax revenue from Switch and would not if the bills are not passed.
“This is a unique opportunity for the Michigan,” he said. “We have a company, Switch, in an emerging industry which is prepared to make a huge investment in the state of Michigan.”
Rep. Andy Schor (D-Lansing), a bill sponsor, said he does not believe the state is forgoing revenue because it would not be collecting the revenue if Switch did not locate in the state.
And Rep. Ken Yonker (R-Gaines Township), another bill sponsor, said Switch will still pay real property taxes, business taxes and employees would pay income taxes.
According to the House Fiscal Agency, the immediate revenue reduction from enacting the legislation would be $20 million and $30 million. However, the HFA notes this does not take into account revenue losses from other businesses that would also qualify for the exemptions. It also does not take into account any data centers that would expand or move to the state.
Mendenhall said the company has adopted its own minimum wage and tech workers’ salaries can range from $60,000 to $200,000 annually. He also noted at the company’s Nevada headquarters, construction has been nonstop. He said a Michigan location would likely be similar.
“Our commitment to hiring locally would be the same in Michigan,” he said.
He also said 70 percent of the company’s employees are veterans and half of its senior executives are women. Employees also receive full benefits and profit sharing, he said.
Yonker said having Switch housed in Michigan would make the state a national player. But Rep. Jim Townsend (D-Royal Oak) questioned if the tax exemptions were the right way to go, pointing at tax changes in 2011 that departed from the tactic.
But Yonker said these bills would be another step toward making Michigan more attractive. And Schor said he shares similar concerns as Townsend, but feels that the benefit from Switch locating in Michigan outweighs those concerns.
Mendenhall said if the company locates here, it will attract its clients and other businesses as well.
“There’s no such thing as a tech company anymore,” Mendenhall said. “Technology has stopped being an industry. It is the underlying fabric and backbone of every company you interact with, whether it’s health care, or buying something on a website. Data centers are places where all of your Internet traffic must go.”
Carrie Wheeler, spokeswoman for the Michigan Data Center Alliance, said the legislation should not aim to pick winners and losers.
“We shouldn’t use the tax code to pick winners and losers, especially when we can pick winners and winners,” Wheeler said in a statement. “A fair reform of the tax code for all data center businesses – current and future – could establish Michigan’s leadership as a top destination for innovative companies in a fast-growing sector of our economy. Michigan has an opportunity to build on the success of existing data center businesses while bringing new business into our state – but we must base any such effort on the fundamental principle of fairness in the tax code.”
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