State tangible personal property tax laws often discriminate against technology that is crucial to serve the demands of the information age, according to new research released Tuesday by National Taxpayers Union.
The complex depreciation schedules required to value property are designed around manufacturing machinery that often performs at the same level after a decade or more of use. Applying the same standards to data centers can significantly overvalue equipment like computer servers, which are often obsolete after three years.
“State taxation of tangible personal property is particularly harmful to capital-intensive businesses like data centers, and certain characteristics of data centers result in uniquely aggressive TPP tax burdens compared to other industries,” according to the paper written by NTU Senior Fellow Jared Walczak. “Policymakers should pursue a level playing field, ideally moving away from the outdated notion of taxing personal property, but at minimum avoiding policies that (often inadvertently) impose particularly heavy taxation on specific industries, like data centers.”
For example, Florida’s tangible personal property tax laws value a three-year-old server at 56% of its original cost. Meanwhile, Indiana, Missouri, North Carolina, Oregon, and Washington classify a server at 40% of its original cost after three years, even though its market value is close to nothing.
Tax burdens that value antiquated technology well above its actual market value lead to higher prices on consumers and businesses when they pay for technology services like hosting, according to the research.
“State lawmakers should reform tangible personal property laws so they’re uniform, neutral, simple, and stable,” Pete Sepp, President of National Taxpayers Union said. “Data centers are the manufacturing plants of the information age, and our laws should reflect that reality with equal treatment.”
United States tangible personal property tax laws are an international anomaly. Only 7 of the 38 Organisation for Economic Co-operation and Development (OECD) countries tax tangible personal property at all, and, among them, only Japan imposes them as broadly as the U.S. Furthermore, each U.S. state has a different definition of what should be taxed as tangible property in data centers, causing confusion and compliance burdens for businesses.
National Taxpayers Union is the only free-market organization for taxpayers that unites effective advocacy with useful research about how to limit taxes, spending, and regulation at every level and branch of government—state, federal, administrative, and judicial.