Some Minnesota lawmakers want to extend tax breaks for energy-sucking warehouses. Why?

Yahoo

27-05-2025

Minnesota Technology Center houses multiple data centers, including a Cologix and a Vaultas data center, in this facility next to U.S. Bank Stadium in Minneapolis Friday, May 23, 2025. (Photo by Nicole Neri/Minnesota Reformer)
Minnesota lawmakers are considering giving some of the country's most profitable tech companies tax breaks on their data centers up to the year 2102 — when most of the legislators and lobbyists furiously negotiating the deal will be dead.
Minnesota currently has 42 data centers, with the majority spread across the metro. Nationwide, tech companies are rapidly building data centers — large warehouses with computer servers used to power the internet — to store and process data. The massive computing power required to develop nascent artificial intelligence breakthroughs are leading companies to seek more data centers.
Minnesota offers sales tax breaks for qualified data centers on purchases of computers, servers, software and cooling and energy equipment. This tax break, which comes in the form of a refund, is set to expire in 2042.
But lawmakers are considering extending the break, perhaps as an olive branch since they're also going to revoke the sales tax exemption on the electricity that data centers consume. This is expected to generate around $140 million in revenue over the next four years.
Minnesota is facing a multi-billion dollar budget deficit in the next few years, and lawmakers are currently looking to cut programs and services — and a few tax subsidies — to balance the budget.
But since the decision by legislative leaders to revoke the sales tax exemption on electricity will sour the state's relationship with companies that own data centers, some lawmakers hope expanding current tax breaks far into the future will incentivize companies to keep building their warehouses full of servers in Minnesota.
Amazon recently announced that it's suspending plans for a large data center in Becker 'due to uncertainty' — one week after lawmakers announced they were eliminating the sales tax exemption on electricity.
Gov. Tim Walz on MPR News Friday said that Amazon's decision to suspend its Becker data center was 'pretty bad lobbying' because lawmakers are still negotiating data center provisions.
'We also have one of the most generous tax credits as it stands, but we have to balance our budget. I think a lot of Minnesotans are saying, 'Well, you couldn't do a tax cut to my sales tax, but you could do a tax cut to Jeff Bezos.' I think that was one where it's right-sized.'
Minnesota law currently allows qualified data centers a sales tax exemption on technology equipment for 20 years, up to the year 2042. But a proposal from Senate Democrats would extend the tax break to 40 years and sunset it at 2062. This means that a data center that makes its first purchase in 2062 could continue claiming the exemption until 2102.
Members of the taxes working group — an unofficial meeting of Senate and House members who are negotiating a budget agreement before Walz calls a special legislative session — are debating the data center tax exemptions.
Sen. Grant Hauschild, DFL-Hermantown, said during a meeting Friday that Minnesota needs to remain competitive with other states.
'We are getting investments from these companies to Minnesota,' Hauschild said. 'Other states … have other exemptions that will build these data centers. So we have to understand, do we want investments in Minnesota or do we not want investments?'
Proponents of sales tax exemptions for data centers tout property tax revenue and job creation. But data centers operate with few workers. Like a bridge or highway, once the project is complete, most of the jobs are gone.
And since the number of data centers is growing, the tax breaks will become even more expensive over time.
In Washington State, the tax breaks intended to create jobs have cost more than $474 million since 2018, ProPublica reported. Most of the benefits through the tax breaks went to Microsoft, not local communities.
Minnesota Rep. Aisha Gomez, DFL-Minneapolis, on Friday said that when Minnesota first enacted the sales tax break for data centers in 2011, the state estimated it would forgo $5 million annually in revenue.
But a recent estimate from the Department of Revenue found that even with the elimination of the sales tax break on electricity, the software and other equipment exemption will still cost Minnesota around $100 million annually — and $219 million in fiscal year 2029.
'This is a sales tax exemption that is being asked for by the largest, most profitable corporations that have ever existed on the face of the earth,' Gomez said. 'I think it's really important that we actually look at what this really is, and we look at the powers that are lining up to try to force us to make this decision. And we think long and hard… (about) whether it's appropriate that this kind of money should be going from the public coffers into the hands of billionaires.'
Data centers are huge consumers of both electricity, and water needed to cool down the equipment.
The Department of Revenue estimated that the 42 data centers in the state consumed 1.6 billion kWh of electricity in 2023.
Running a dishwasher for one hour uses 1 kWh of power.