(The Center Square) – Hyper-scale data center projects in Wisconsin are free from paying sales tax on everything from electricity to construction to the servers and equipment inside them.
Wisconsin is also one of 14 states where data centers are exempt from personal property taxes.
But their impact on the property tax base in the communities they enter is far more complex, especially as it relates to the tax increment financing involved.
Several of the municipalities set to welcome the data center projects are projected to see increased property tax bills in the short term with the promise of property tax relief on some level in the long term due to the projects, according to a new analysis from Wisconsin Policy Forum.
The increased property value is added to the property tax rolls but the increased property tax value is kept in the tax increment district while the rest of taxpayers have to pay for the tax increases.
Municipalities have five years to increase taxes based on the new property value or they cannot do it later. A Port Washington data center will more than double the municipality’s tax base while a Beaver Dam data center is projected to be equal to 59% of the current tax base there.
“The (Port Washington) developer will be paid all property taxes in excess of the amount that would have been paid if the property had been valued at $120 million for the life of the TID,” the analysis said, stating the TID is expected to close in 2045. “The developer also must pay for roads damaged during construction and cover nearly $7 million in estimated impact fees.”
The increased property taxes from the data center contributing to the tax base only occurs when the tax increment district ends and if the data center is still operational at that point.
“Any decrease in property taxes for current residents due to a data center would primarily occur in their municipal and county taxes and not their school levy,” Wisconsin Policy Forum wrote. “That is because when property values per pupil rise for a school district, then it typically loses general school aid, which in turn cancels out the decrease that would have otherwise occurred in its tax rate because of the additional tax base.”
The analysis was done with support from Metropolitan Milwaukee Association of Commerce, the League of Wisconsin Municipalities, the Wisconsin Realtors Association, the Greater Madison Chamber of Commerce, and Forward Janesville.
The report suggests that state lawmakers could extend the amount of time that municipalities have to increase their levy so property taxpayers are not hit with significantly increased bills during the first five years of a project.
“Giving local elected officials more time under state levy limits to decide whether tax increases are needed, particularly in cases involving TIDs,” the report included in a list of policies to consider.