Below is the HillCo client report from the April 24 Joint Technology/Ways & Means Hearing.
The committees met to take up the following interim charge:
Review state regulatory and tax policy to ensure that investment in technology infrastructure, goods, and services is unfettered and that Texas is able to capitalize on innovation to fuel additional job growth, business expansion, and investment.
Robert Howden, Chairman Texas for Economic Progress
- Legislature may great strides in R&D and broadband equipment last session
- Private investment in wireless infrastructure will generate $1.2 trillion in economic growth and 1.2 million jobs – wants to make sure that money and those jobs come to Texas
Deborah Giles, Texas Technology Consortium
- HB 1133 provides rebate on sales taxes of broadband equipment – cable companies have invested $10 billion over last decade because of this bill investment goes farther
- HB 800 will help make Texas more economically competitive
- HB 1223 provides sales tax exemption for data centers – prior to this legislation Texas was losing data centers to other states and because of this legislation Texas saw three new data centers – which provide $800 million total investment
- Encourage members to build on these legislative successes
- Rep. Button asked about job growth – Texas slowed down and no longer first – any predictions on job growth and insight into technology industry
- In general Texas technology companies recruiting more higher paid jobs
- Not concerned about one month fluke of the numbers
- One company already in Texas is already doubling its size so that is a great sign for Texas
- Rep. Gonzalez – what are factors three companies looked at besides HB 1223
- Experts for locating – so had to have right power and other certain criteria that had to be met – looking for safe area next and then incentives
- Rep. Gonzalez asked about border location
- Trying to keep investment in the state
- What does El Paso need to do to start attracting businesses asked Rep. Gonzales
- Biggest issue would be access to electricity and infrastructure issue
- Rep. Eiland – any other incentives to data centers besides sales tax on the equipment
- Yes packages have varied by company – not uniform and is up to city to offer
- San Antonio has been very aggressive
Stephanie Simpson, Director of Legislative Affairs for Texas Association of Manufacturers
- Among other incentives (listed above) TAM worked to extend CH. 313 and advocated Freeport tax exemption adjustments – all tax incentives are critical
- The new R&D incentives has several TAM member companies looking into expansion across state but still too early to make announcement as Comptroller is still working on the rules
- Rep. Gonzalez – what is future of biotechnology, etc
- Will have to pull information and get it back to the committee
- Rep. Eiland – ensuring transportation infrastructure need was mentioned in testimony that witness handed out – does TAM have a funding mechanism they support
- They are working on that now and will be getting it back to committee
- Rep. Gonzales – Ch 313 wage requirement was in last legislation
- County wide number is problematic for those counties with a depressed part of a wealthy county
- Chair Hilderbran recalls history of legislation and implies there are other ways to measure and notes bill gave more flexibility than previously
- Witness in response to Rep. Button’s question on job growth confirmed that one month was not concerning but Texas did not make top ten job growth in defense industry and something Texas should keep an eye on
Sylvia Kang, CyrusOne
- 3 data centers in Texas will bring $6 million in tax revenues each so $18 million came to Texas that would have not otherwise if the legislation had not passed last session (HB 1223)
- With a lowering of HB 1223 threshold we could have seen more swayed to come to Texas
- Chairman Elkins suggests maybe a bill could be bracketed to look at bringing tech companies to the border counties
Shane Menking, President and CFO Data Foundry
- Networks/ power and cooling are all very important to the business and decision criteria as well as taxes
- Servers do not need to be in the same city as people that are running them
- Competing not just within Texas but within other regions in the United States
- Request committee to look at lowering threshold that was in HB 1223
- Chairman Hilderbran asked what threshold would work
- Could lower threshold to $50 million or extend timing of when it is counted
Bryan Marsh, Digital Reality Trust
- Recently qualified for HB 1223 so familiar with the process
- Co-location can refers to companies that outsource
- kW and MW users are what drive numbers rather than square footage
- HB 1223 is geared toward large users (8-12MW users)
- Rarely see deals of that size coming to Texas
- Asked committee to consider tweaking bill to capture smaller to mid-level market
- Rep. Eiland asked if cost of power is factor in addition to reliability
- Texas has lower cost – natural gas power plays a role in that
- Rep. Eiland asked witness if they are comfortable with reliability
- Texas was known as but rolling blackouts brought attention
- Texas may not be as reliable and more generation is needed here but companies do take precautions with backup generation on site
- What other incentives were received?
- Richardson offered 50 cent abatement on up to ten years but Linked in has not applied for that yet – may do so in the future
- Would like to see threshold lowered, would like job requirement lowered as data centers don’t hire that many people – many times these are lights out facilities
- Arizona will give similar incentives to businesses that are a 10th of the size of Linked In
- Rep. Button inquired about medium and small size data centers – what state is well positioned
- Texas, Virginia and New Jersey in terms of data center growth
- Rep. Bohac asked if the incentives from the legislation is that crucial – believes people would be indifferent to name of tax but what is the significant of tax piece?
- Witness says top 10
- Rep. Bohac wants to make sure legislature not picking winners and losers would rather get rid of franchise tax altogether
- Rep. Button agrees with Rep. Bohac and wants a free market spirit – asked witness if the tax abatement was a large issue if they are still considering if they will use it through Richardson
- Witness clarifies the incentive was only for that end user and would not apply to data center
- Rep. Trey Martinez Fischer asked if making sure energy cost is low be a factor
- Definitely should be thinking about it replied the witness
- Rep. Trey Martinez Fischer points out Tesla as an example – maybe should legislature ask utility to reevaluated interconnectivity fee. Should be considered fair game, would it be helpful to you?
- Witness said it is a good talking point to say they are a green company but in the end just want the power to stay on and will pay for that. Current goal is to be more efficient.
- Chair Hilderbran said legislation was done to make sure Texas stayed competitive
James Grice, Digital Reality Trust and Co-location Industry representative
- Worked on the language Arizona ultimately adopted
- Growth in this industry will be significant
- It’s about creating a business friendly environment and really talking about altering tax framework
- Data centers aren’t really an industry more like a utility platform – every industry benefits
- Labor issues need to consider since they will not be driving on roads or using schools
- Rep. Bohac said at end of the day it is about the bottom line – where is competitive rent, real estate cost per square foot, labor market (but not a lot of labor), so what % does Texas represent as total tax load?
- Witness said it varies
- Rep. Bohac would like to see some tax going back to taxpayer or get rid of franchise tax
- Chair Hilderbran asked witness and all who testified to supply answer to Rep. Bohac’s question – how does franchise tax, how does property tax, sales tax impact these companies locating here? So those details can be include in the write up/recommendations.
Frank Lyles, T5 Data Centers
- Cost of power and sales taxes are factor
- Texas is at lower end but not lowest on cost of power
- In regards to reliability concern – what happens if power goes out still have to have back of house infrastructure to compensate so not huge swing issue
- Other states are aggressively going after mid-level user
- Rep. Hilderbran asked if sales tax is number one driver?
- Rep. Hilderbran pointed out there is no income tax and there is no corporate tax in Texas – but there is a franchise tax – “it is based on capital and revenue, I guess”
- Witness elaborated on sales tax vs property tax
- Property tax is negotiable and is process of months for abatement so is not a driver
- Process with Comptroller is pretty straightforward for sales tax
- Rep. Bohac if you need to come up with a formula to cut or not cut taxes – what formula would you look at?
- Thinks the lower the threshold, the better
- Rep. Eiland cautions threshold lowering may not happen next session due to success of current bill
- Chair wanted to clarify there is a data processing sales tax – on the service itself
Lea Edwards, Comptroller of Public Accounts Tax Policy Division
- Rep. Bohac if considering a tax cut in a dynamic environment – what would be the potential economic benefit from tax cut if thinking about from a holistic view?
- Edwards did not know but will get that information from revenue estimating staff and get it back to the committee