Indiana lawmakers are considering legislation that might make data centers more palatable to local governments where officials are increasingly under pressure from constituents to block the projects.
House Bill 1333, authored by Rep. Kendell Culp, R-Rensselaer, would require data center developers that receive sales tax exemptions to give 1% of the abatement to local governments.
The legislation, which passed the House on Feb. 2 with a 54-45 vote, was sent to the Senate Utilities Committee. As of Wednesday, Chair Eric Koch, R-Bedford, had not scheduled it for a hearing.
HB 1333 is the only data-center-related bill advancing this session as debates, packed public meetings and online vitriol surrounding data centers continue across the state. Opponents say the state shouldn’t subsidize projects that use large amounts of power and create relatively few jobs.
In November, three Indiana counties had enacted moratoriums on data centers; as of this week, that number had doubled to six. Local officials say they need time to come up with regulations for data centers to manage the energy and water usage concerns and aesthetic complaints.
Culp’s original version of HB 1333 called for revoking sales tax exemptions for data center developers. The milder version that moved to the Senate has been amended numerous times.
Matt Greller, CEO of Accelerate Indiana Municipalities, said the dedicated revenue stream the bill would provide could be significant for smaller communities. Whether the 1% payment on taxes that would otherwise be exempted is enough to change the narrative around data centers at the local level remains to be seen.
“We’re talking hundreds of millions of dollars in investment,” Greller said. “So, 7% of that sales tax, and we get 1% of that 7% back — that would be a game changer for some communities in terms of what they’re providing.
“On the flip side, though, you’ve got to look at … your constituent reaction to a facility like that — what’s the land use around where that facility might go?” he said.
Giving locals an incentive
The sales tax exemptions that currently apply to some data center developers are the result of legislation passed in 2019.
That year, the Legislature granted the Indiana Economic Development Corp. discretion to give data center operators 50-year abatements on sales tax applied to computing equipment purchases. Those exemptions can be worth tens of millions of dollars over the lifetime of the incentive deal and make Indiana an attractive location for developers.
Culp’s bill originally would have barred the IEDC from issuing tax exemptions for new data center projects, but it was amended by Rep. Ed Soliday, R-Valparaiso, who chairs the House Utilities, Energy and Telecommunications Committee.
“Data centers have become such an emotional issue out there, and decisions aren’t being made on factual things. We’ve got to store data somewhere,” Soliday said when offering his amendment in committee Jan. 20.
The amended bill allows data centers to keep their tax exemptions but requires them to pay local governments 1% of the sales taxes waived by the IEDC through a payment in lieu of taxes, or PILOT, structure.
Where the payment goes within the local unit would be up for negotiation, and the exact amount of money going to local units would vary.
In June, the IEDC approved incentive packages for four hyperscale data center projects, each totaling $800 million to $1 billion worth of investments. The abatements on equipment purchases for those projects run for an initial 35 years and can be extended for three more five-year periods.
The IEDC estimated the value of the initial abatements on sales tax for each project at $42 million, which would net $420,000 for local government units under HB 1333.
One of those projects was Google’s attempt to bring a data center to Franklin Township on the southeast side of Indianapolis. Google ultimately withdrew its request due to a lack of support from the Indianapolis City-County Council. The council opposition was led by Republican Michael-Paul Hart, who represents Franklin Township.
Hart told IBJ he didn’t like Google’s proposal mainly because it would have taken other proposals for the land off the table. Had state law required Google to participate in a PILOT setup, he would have given the proposal more consideration, Hart said.
Exactly how much the Franklin Township project would have generated in PILOT payments is unclear. But the figure likely would not have been enough money to “move the needle,” Hart said.
“It would have been impactful to conversation,” he said. “I would have to know where and how it would be spent, because that’s a big component, as well.”
Hart pointed to an Indianapolis rule mandating that companies receiving Marion County tax abatements invest 5% of their savings into workforce support programming. He said a provision similar to that could be more impactful in many cases than the state PILOT language.
But large data center projects could theoretically yield higher local payments.
Speaking in committee, Soliday cited a major data center project in Hammond where the Decennial Group says it will spend $5 billion on equipment purchases. If that full amount were deemed eligible for sales tax abatements, locals in Lake County would receive around $3.5 million. However, the IEDC has not formally granted tax credits for the project.
The Association of Indiana Counties says guaranteed local payments would be a step in the right direction.
AIC Executive Director David Bottorff said county governments are “still in the learning process” when it comes to data centers, with water conservation representing a consistent concern. In Bottorff’s mind, a 1% payment would make the developments more enticing.
“I think sharing the sales tax money is a big issue. Bringing community benefits, that’s probably one of the bigger things,” Bottorff said. “Again, they don’t create a lot of jobs, but the jobs they do create tend to be high-paying jobs, and they don’t demand a lot of services.”
Greller, who represents cities and towns in the state, said the payments would be “a nice addition to the overall conversation.” He added that any type of revenue for local governments takes on extra importance after last session’s changes to Indiana’s property tax structures that have caused local governments across the state to cut budgets.
“With the sales tax provision in the bill, it does become more attractive to local governments, especially in the wake of reducing revenues in other areas like we’ve talked about before from a property tax standpoint,” Greller said.
Other legislation
However, a separate provision in HB 1333 could tank the legislation.
The bill removes local zoning control for agricultural land determined to be less desirable by the USDA’s Natural Resources Conservation Service.
The conservation service ranks farmland by soil metrics. For areas of the state that have less fertile soil, data centers — or any other projects — would be considered permitted uses without developers needing a zoning hearing.
That language has drawn swift backlash from local communities and leaves the legislation “on life support at best,” according to House Speaker Todd Huston, R-Fishers.
Koch, chair of the Senate Utilities Committee, issued a statement Feb. 5 saying the land-use provision will be removed from the bill during committee.
In a written statement, Culp said the section about land use was an attempt to get data centers to look at less-than-desirable farmland for their projects. He also said he’d be open to the Senate amending the bill.
“My goal with this legislation has always been to grow our local communities while protecting our most valuable asset, prime farmland,” the statement read in part. “Improvements are still needed on this bill.”
Data-center-related bills filed this session that have died include measures to regulate or study the impact of data warehouses.
Democrat-authored bills called for data centers to report their electricity usage and for data centers to disclose the projected power and water usages of facilities before receiving permits. Rep. Alex Burton, D-Evansville, authored a bill that would have required data center operators to get water consumption permits from the Department of Natural Resources, while another measure would have required data centers receiving IEDC tax credits to use union workers.
Republicans also attempted to address Indiana’s data center surge. Sen. Chris Garten, R-Charlestown, authored a bill prohibiting electricity providers from raising rates if the increase were related to the utilities’ cost of providing service to a data center. Rep. Robb Greene, R-Shelbyville, for the second year in a row proposed outlawing the IEDC from entering into nondisclosure agreements on development projects.
None of those bills received a committee hearing.
Regarding HB 1333, Huston said he hopes the General Assembly will pass a bill that encourages more local governments to accept data centers.
“I think communities need to get all their facts and get all the things aligned to it and then make decisions. But [data centers are] obviously huge economic development opportunities,” he said.
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