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Data centers are popping up all across the country, and there are several in the Kansas City area.
In the third part of our Data, Dollars and Demand series, we're taking a look at some of the incentives Missouri uses to bring these multi-million dollar investments to the metro.
When you buy something in Missouri, you also pay about 4.2% in sales tax.
It's a small number for a bag of chips, but it's much larger for companies buying billions of dollars worth of data center equipment.
Money that goes toward Missouri sales tax revenue is split into general revenue, conservation, education and parks and soil funds.
In Missouri, data centers don't have to pay any of that sales tax.
Missouri's director of economic research for the Department of Economic Development explained no sales tax on data center equipment is the state's biggest incentive to bring billion dollar investments, like Google and Meta, to the Show-Me-State.
"There's a lot of equipment that's in there," Jeff Pinkerton, director of economic research for the Department of Economic Development said. "Data centers are very, very important to Missouri and they're something we are pursuing. We want to continue to grow and be an attractive place for data centers."
The data centers benefit to Missouri is economic growth in the tech world. While the institutions only employ around 100 people once fully complete, Pinkerton explained data centers are attracting more businesses to follow.
"They have a pretty large multiplier," Pinkerton said. "When you have economic development, we look at that jobs multiplier. Every job that we get in a data center, there's six other jobs that are created elsewhere in the economy because they're so important and integral to the entire economy."
Data center sales tax exemptions aren't unique to Missouri. You can find them in most states that are considered tech hubs, like Virginia.
Good Jobs First is a nonprofit that looks at different tax subsidy programs provided to individual companies in exchange for job creation and investment.
"Sales tax exemptions are a very profitable subsidy to companies," Kasia Tarczynska, a research analyst, said.
Tarczynska explained while tax exemptions are beneficial to big tech corporations, they don't always have the same return for state budgets.
"There's less money to spend on very important public services such as public health care, public schools and infrastructure development," Tarczynska said.
Missouri tracks the dollar amount of taxes not collected from abatement programs. The most recently published financial statement from the fiscal year ending in June 2023 shows every other tax abatement amount, but data center sales tax exemptions are confidential.
"We don't really know how much [data centers] cost local communities," Tarczynska said.
A report from Virginia's Department of Taxation gives us an idea of how much communities don't receive in tax abatement dollars.
Data center companies saved more than $903 million from sales tax exemptions in fiscal year 2022, money that didn't go into the state's general revenue or education budget.
"In other words, these programs do not pay for themselves," Tarczysnska said.
Data centers in Missouri have to create at least ten new jobs for new facilities, with wages higher than the county average, and provide at least $25 million in investment to qualify for sales tax exemption. Expanding facilities have to create at least five new jobs with wages higher than the county average and provide at least $5 million in new investment.
The digital world is demanding more data centers and Missouri leaders plan to take advantage of that demand.
"We need to have these facilities," Pinkerton said. "They're going to exist somewhere, and I think we can get some benefit from them. We would like to see them pop up here."
Data centers consume thousands of megawatts of energy to keep running.
Developments in Missouri like Google and Meta receive a special rate on the price of electricity through Evergy. That rate also is confidential.
Kansas City is seeing an influx of data centers being developed in the Northland.
More information on their purpose and role in the Kansas City community can be found here.
