Rural Data Centers Are in for a Big Federal Tax Break

Beginning next year, corporations situated in rural regions throughout the United States will gain access to unique corporate tax advantages as part of an expansion of the program. According to Jason Smith, chairman of the Ways and Means Committee, these new regulations "could significantly reduce obstacles for large-scale, capital-intensive projects in rural areas, particularly hyperscale data centers."

Smith further explained that the economic rationale for constructing data centers in designated rural opportunity zones becomes increasingly compelling with this program. However, experts caution that the outcomes for rural communities may be mixed. Emily Kraschel, a tax policy analyst at the Searchlight Institute, a public policy research organization, noted that the only prerequisite for obtaining these benefits is capital investment, which does not necessarily guarantee job creation or an economic uplift for local communities.

In contrast to traditional factories that typically require a substantial workforce, the assumption surrounding data centers is less certain. The One Big Beautiful Bill Act, enacted last year, made several revisions to the program to stimulate more investment in rural areas. A study conducted by Searchlight revealed over 100 data centers under various stages of development in rural areas that may qualify for these tax benefits.

Through their research, Searchlight discovered that the number of eligible projects is likely to be higher, with estimates of around 1,500 data centers in development in the US. It appears that many of these new data centers are moving away from urban centers. Research from Pew indicates that although only 13 percent of operating data centers are currently located in rural areas, a significant majority of planned facilities, approximately 67 percent, are being developed in rural regions.

As the opposition to data centers, particularly from rural and Republican voters, intensifies, tax breaks for data centers being built by major corporations have become a contentious issue. Amazon recently sparked controversy by attempting to negotiate a lower tax bill for one of the numerous data centers it plans to establish in Mississippi, while The New York Times recently reported that Meta is writing off data center equipment under a federal tax break designated for research and experimentation.

The search for ways to regulate the industry has not overlooked the opportunity zones. Senator Josh Hawley introduced legislation last month to eliminate opportunity zone funding for data centers, arguing that he aims to prevent "Big Tech companies from receiving tax breaks to build data centers on farmland." Merely being situated in a rural opportunity zone does not automatically entitle a company to the tax benefits; the company must establish a specialized investment vehicle to initiate the process.

Given that the tax benefit is classified as confidential IRS data, it is extremely difficult to determine which companies are pursuing these benefits unless they voluntarily disclose. The research conducted by Searchlight identified some prominent names that could potentially benefit from the program. However, when contacted for comment on the program, high-profile tech companies such as Meta, Amazon, Microsoft, and Google appeared to distance themselves from yet another tax break story.

Microsoft's general counsel of infrastructure legal affairs, Rima Alaily, stated that the company "does not use the opportunity zone program to invest in the purchase or construction of its data centers." Amazon spokesperson Julia Lawless similarly declared that the company "does not actively seek out" land in opportunity zones for development and has not claimed the tax benefit for its projects.

"If we locate in one of these areas, it's because our site selection criteria—from available land to access to talent—align with tracts that governments across all levels have previously identified for economic development; not because we utilized the OZ benefit," said Lawless. Google did not respond to WIRED's inquiries. The decision for data center builders to choose rural areas may be influenced by various factors, including moving away from community opposition and seeking cheaper land.

However, it is not out of the question that companies with lower profiles than Microsoft or Amazon may opt to utilize the tax benefits. Nathan Jensen, a government professor at the University of Texas-Austin, expressed surprise if some companies were not considering rural opportunity zones in their decision-making process. "It's essentially free money," Jensen remarked.

While giving tax advantages to companies to spur local economic growth is theoretically beneficial, the execution of the opportunity zone program has been mixed. There is some evidence suggesting that the program has not been effective in driving investment to disadvantaged areas, and many projects receiving federal subsidies would have proceeded without the additional funding.