In a pivotal move signaling the burgeoning interest of the tech industry in South Dakota, the state’s legislative committees have taken significant steps toward establishing a more structured framework for data centers. With measures that propose modifications in sales tax and utility usage, these discussions accentuate the potential growth and the ensuing challenges of a digital infrastructure ecosystem in the heart of America. As lawmakers and stakeholders convened for what was informally dubbed “data center day” in Pierre, both support and contention emerged, centered around the proposed regulatory and economic impacts.
The crux of these legislative developments was Senate Bill 135, championed by Senator Chris Karr from Sioux Falls. SB 135 set forth a stringent requirement for data center operators to handle all electric costs directly, thereby safeguarding residential customers from any additional financial burden. Moreover, data centers will be mandated to submit semi-annual reports on their water usage, aimed at promoting transparency and sustainable water resource management.
Nick Phillips
However, a contentious point in SB 135 is its outright prohibition on any tax exemptions for data center equipment. Industry voices, like Nick Phillips of Applied Digital, a company eyeing potential investments in Deuel County, argue that eliminating these exemptions renders South Dakota less competitive compared to neighboring states like North Dakota, Minnesota, and Iowa, due to increased operational costs.
Senator Karr defended the state’s stance, emphasizing South Dakota’s allure as a business-friendly environment. “We’ve protected South Dakota and its business landscape,” Karr asserted. “We have no corporate income tax; we have no personal income tax; we have a competitive property tax structure. Historically, we are a business-friendly, regulatory climate. We’re a low-tax environment.”
Despite this assurance, the tech industry fears the competitive edge might be dulled. Phillips highlighted the financial discrepancies, noting, “It would cost roughly $2 billion more to build one of these facilities in South Dakota as compared to one of those other states in sales tax on all the equipment and everything else that’s collected.” This financial strain could deter future investments, he cautioned.
The legislative landscape also saw the progression of Senate Bill 239, spearheaded by Senator Casey Crabtree. SB 239 proposes to expand the existing Reinvestment Payment Program (RPP), providing large projects, including data centers, with the possibility of a 30-year state sales tax exemption, contingent on fulfilling specific project benchmarks. This bill advanced from the Senate State Affairs Committee with a 6-3 vote, reflecting a balanced approach between incentivizing economic development and maintaining fiscal prudence.
Crabtree underscored the multifaceted benefits of this expansion, stating, “That incentivizes real jobs to be started here in South Dakota in all industries. That’s agriculture, that’s energy, that’s manufacturing. This is part of stepping back into the golden age right now.”
On the flip side, the House State Affairs Committee opted for transparency in state dealings by advancing a bill prohibiting non-disclosure agreements (NDAs) between government entities and data centers. Proponents argue that such a measure enhances transparency regarding projects utilizing state resources. However, data center representatives contended that NDAs are crucial early on to mitigate undue public concern for projects still in nascent stages of development.
A day marked by intense debate also saw the demise of bills introducing stringent controls on data center operations. These included proposals by Senator Taffy Howard aiming to limit noise pollution, set considerable distances from residential areas, and impose a development moratorium. Lawmakers, expressing concerns over local autonomy, shot down these bills, emphasizing that regulatory decisions be left to local jurisdictions.
Amid these discussions, two bills found favor, advancing out of their respective committees. However, the broader consensus emphasizes a balanced approach that supports South Dakota’s appeal as an investment hub while safeguarding its natural and economic resources.
The narrative unfolding in South Dakota reflects an evolving dialogue between state-led economic ambition and the sustainable management of an increasingly digitized future. As the legislative machinations proceed to the Senate and House floors, stakeholders remain vigilant, ready to shape the future of data centers in the Mount Rushmore State.