Efforts to get more data centers built in Rhode Island were put on hold in May when legislation offering tax breaks to developers was tabled.
Sen. Louis P. DiPalma, D-Middletown, and Rep. John J. Lombardi, D-Providence, introduced the companion bills in March. The legislation includes exemptions for sales and use taxes on equipment and materials used to build and run a data center; on property taxes for the building and its equipment; and on financial transaction taxes for companies operating or leasing space in the building.
To qualify for the tax breaks, which would be in place for 30 to 50 years, a company must invest at least $200 million in the data center if it’s located in an enterprise or a federal qualified opportunity zone, or $400 million if it’s located outside such zones; pay an annual fee not to exceed $25,000 to the R.I. Commerce Corp. to cover administrative and operational costs; and sign a long-term agreement with the state. Investment and annual fee payments would have to be made within a five-year qualifying period.
The push to build more data centers in the state puts Rhode Island in the middle of a growing national scramble, as states from Virginia to Nebraska race to land the power-hungry infrastructure behind artificial intelligence and cloud computing.
More than 30 states, including neighboring Massachusetts and Connecticut, already have tax incentives on the books for AI-scale data center development.
There are currently seven data centers in Rhode Island, all of which are in Providence, according to Data Center Map, which tracks operations nationwide. However, Massachusetts has 50, including two in Fall River, and Connecticut has 59.
“At this point, we’re not going to be first; we’re not going to be second; we might not even be the 40th, but does Rhode Island really need to be dead last?” DiPalma said. “Passing this bill to incentivize data center growth, however late in the game it may be for the state, is really just our cost of admission into a vast, growing industry.”
States that offer such tax breaks are turning a profit. From 2017 to 2023, data center industry employment in the U.S. grew by 60%, supporting 4.7 million jobs nationwide in 2023, according to the Data Center Coalition. Over the same period, annual tax contributions from data centers to federal, state and local governments surged by 146% to $162.7 billion.
However, Good Jobs First, a nonprofit, nonpartisan watchdog on economic development incentives, tells a different story.
According to the group, 10 states are losing more than $100 million per year to data center tax abatements, including Texas, which is losing the most at more than $1 billion annually.
The findings are part of a Good Jobs First report released in April called “Cloudy With A Loss of Spending Control: How Data Centers Are Endangering State Budgets.”
There are currently 32 states with data center tax exemptions, according to the report.
“We recommend that states cancel their data center tax exemptions,” Kasia Tarczynska, a Good Jobs First senior research analyst and co-author of the report, said in a statement. “Shy of that, states should amend enabling legislation to cap how much any facility and company can avoid paying in taxes each year.”
The Rhode Island bills were tabled in May by both chambers’ finance committees after Tax Administrator Neena S. Savage raised red flags.
Savage warned that the legislation lacks clear job creation requirements with taxation ties to Rhode Island, risks granting tax breaks to out-of-state firms with few local benefits and uses overly broad or outdated definitions that don’t reflect modern data center operations.
“Data centers traditionally employ primarily remote workers that would not necessarily be located in Rhode Island or subject to Rhode Island tax,” Savage said in written testimony. “This means that income from wages paid, and the business income, may not be ‘from’ the data center in Rhode Island, which would result in the sales tax exemption simply increasing profits for an out of state company.”
Companies that fail to meet the tax incentive requirements would have to pay the taxes and any related interest or penalties, but Savage said the proposed bills lack clarity on who would assess the tax, who the payments would be made to and whether any agreements would be terminated or exemption certificates revoked.
Alan Krinsky, director of research and fiscal policy at the Providence-based nonprofit Economic Progress Institute, also submitted written testimony against the bills.
Krinsky raised concerns of light pollution, increased electricity costs and a lack of jobs.
“The legislation contains no job creation requirement or requirement that the jobs will go to Rhode Islanders or be union jobs at good pay,” he wrote.
DiPalma said a data center is a 24/7 operation that requires a rotation of at least four people to run it every week, adding that those jobs are high-paying.
There’s strong support for the bills among those who would build the data centers.
“Encouraging this construction in Rhode Island will … provide potentially lifelong opportunities for the men and women who forge their careers in construction,” Joseph L. Walsh Jr., business manager for the International Brotherhood of Electrical Workers Local 99, based in Cranston and representing more than 1,000 electrical workers statewide, said in written testimony.
Erica Hammond, legislative director for the Rhode Island AFL-CIO, a state federation of labor unions representing more than 80,000 members, also wrote in favor of the legislation.
“[It] can be part of a worker-centered economic development strategy, one that invests in high-road employers, strengthens our skilled workforce, and ensures that development is anchored in local communities,” she wrote.
DiPalma said he’s begun redrafting his bill and will work with the R.I. Division of Taxation through the fall to address its concerns to have it ready for the January legislative session.
