• Kansas lawmakers are considering a bill that would exempt data centers from paying sales tax on construction and equipment.
• Supporters say the tax break is needed to attract data centers and the high-paying jobs they bring.
• Opponents argue the tax breaks are too costly and that Kansas should focus on broader tax relief.
• Some lawmakers also expressed concern about the impact data centers would have on the state’s electric grid.

Kansas politicians are renewing an effort to lure data centers to the state by giving such projects tax incentives.

The Senate voted 34-6 on Wednesday to pass Senate Bill 51, which sends it to the House. The bill would create a sales tax exemption for the construction or remodeling of a qualified data center in Kansas with a minimum investment of $250 million. The tax break would apply to the purchase of equipment and other costs.

State economic development officials say Kansas is missing out on data center projects and could continue to miss out on them without a tax incentive.

“The choice is simple,” said Sen. Joe Claeys, R-Wichita. “We can pass SB 51 and compete for billions in new investment, or we can continue to watch these opportunities go to other states.

“No state has ever attracted a significant data center investment without this basic exemption. This bill brings new investment, creates high paying jobs, improves our power infrastructure and generates long-term tax revenue. It’s time for Kansas to get in the game.”

Kansas is missing out on data centers

Rachel Willis, of the Kansas Department of Commerce, told the Senate Commerce Committee last month that Kansas missed out on five projects in the past calendar year. That included a $10 billion data center campus that went to Louisiana and four separate projects, each worth $800 million, that chose Alabama, Minnesota, South Carolina and Wyoming.

Meanwhile, the agency’s business recruitment team has 14 data center projects in the pipeline. Willis said tax incentives would help entice those projects to choose Kansas.

Greater Topeka Chamber president Juliet Abdel indicated that the capital city has been considered for some of the projects.

“Go Topeka, our Topeka and Shawnee County economic development entity, has had several Data Center projects express interest,” Abdel said in written testimony. “The economic impact both directly and indirectly is substantial. These projects contribute to the economy through infrastructure investments, employment, and function as a catalyst to growth as industries become more digitally driven.”

How would the tax break work?

“This exemption would be for sales tax for anything from land or site improvements, buildings, data center equipment, lease purchases, etc.,” said Sen. Stephen Owens, R-Hesston. “It’s important to note that these sales tax exemptions do have a timeline.”

The timeline depends on the size of the investment. The exemption lasts 15 years for an investment of at least $250 million investment, 30 years for an investment of $500,000 or more and 60 years for an investment that tops $1 billion.

“The reason for that extension is to ensure that these data centers can continue to be refreshed over time,” Owens said, such as investing in updated servers as technology changes.

Owens said this would put Kansas in line with 31 states that have similar sales tax breaks for data centers.

Owens said the tax breaks are offset by the taxes a data center would pay on its electric bill.

“The sales tax that we would have forgone is actually outweigh by the sales tax we would collect on the utilities, and specifically the electricity that is being purchased,” he said. “So ultimately, this is a net benefit.”

More: Amazon spends $102 million on land for AI hub: Server farms vs. data centers explained

Data center projects criticized

Sen. Mike Thompson, R-Shawnee, pointed to a 2016 study by Good Jobs First, a corporate subsidy watchdog. It reported that 11 data center megadeals received a total of more than $2 billion in incentives, translating to a cost of $1.95 million per job created.

A follow-up report in 2023 raised similar concerns, concluding: “The data we do have is clear: Such subsidies are indefensible in any state, given spiraling costs and paltry job creation.”

“If we’re serious about cutting the state budget and providing meaningful tax relief to all Kansans, we must stop picking winners and losers with targeted tax relief for a few,” Thompson said. “Instead, we should level the playing field for all our residents and businesses so they can share in the economic benefits.”

Electric grid concerns

Sen. Kenny Titus, R-Manhattan, opposed the bill “because of concerns about our electric power grid’s ability to provide adequate power supply in the future for both the potential influx of data centers and other economic development opportunities that provide many more employment opportunities.”

Claeys, citing a Kansas Corporation Commission report, said that “large load customers like data centers actually help make electricity more affordable for everyone. Because these facilities provide substantial, predictable demand from large customers, they can plan and invest more efficiently in our power infrastructure.”

Electric utility monopoly Evergy made the same argument in written testimony.

Jason Alatidd is a Statehouse reporter for The Topeka Capital-Journal. He can be reached by email at jalatidd@gannett.com. Follow him on X @Jason_Alatidd.