Data centers aren’t just another asset class anymore – they’re essential infrastructure powering everything from AI to cloud computing. But here’s what catches most executives off guard: the tax decisions you make in the first 90 days will determine whether you save millions or overpay for the next 30 years.
On the inaugural episode of the ITC Tax Podcast, Mark Dzeda (Founder & CEO) and Stephen Shaw (COO) sat down to talk through what actually happens behind the scenes of data center projects – the mistakes they see companies make repeatedly, and how smart planning protects you from costly problems down the road.
Start Early or It Becomes a Reward, Not an Incentive
Here’s the hard truth: once a jurisdiction knows you’re building there regardless, your leverage is gone.
As Mark puts it: “You have to start early in the process, almost before the project is announced. Because once you’ve decided you’re going to build in a location or particular state, it becomes a reward – it’s no longer an incentive. Then basically you’re grasping at straws or crumbs when it comes to incentives.”
The most lucrative incentives? They’re actually outlawed if you wait too long. State laws prevent jurisdictions from granting them once they know you’re committed.
That’s why timing is everything:
- Sign agreements early
- Use project names that don’t give away the owner
- Keep multiple states in play (not just multiple cities in the same state)
- Make it clear this is competitively sited with real alternatives
Why does this matter so much? Because there are groups and laws specifically designed to block incentives. They argue: “Why offer incentives if they’d come here anyway?” You need to prove the jurisdiction has to earn your project.
The Numbers You Share Publicly Become Your Tax Bill
Here’s something most executives don’t realize: when you announce a $5 billion or $10 billion project, that number sticks.
Stephen explains: “A lot of those costs aren’t really taxable. Maybe you tell the local jurisdictions – of that 5 or 10 billion you’re spending – just tell them the taxable portion of it. Now you’re bringing down that value to a more reasonable taxable value you can manage.”
Mark adds: “Everybody’s already starting to go through the numbers saying we’ve got these tax dollars to spend. You publish a number of 5 or 10 billion, they’re going to hold you to that even if it’s not correct.”
This is what we mean by “control the narrative”:
- Under-promise and over-deliver on value
- Focus on job creation and being a good corporate citizen – not just cost
- Be careful announcing timelines (don’t promise 2028 if you won’t get grid hookup until 2030+)
- Count all jobs – contractors, construction jobs, not just permanent positions
- Emphasize taxable value, not total project cost
A lot of the investment is intangible value – permits, power hookups, water access. That’s not necessarily taxable property. Don’t let PR departments or economic development foundations inflate numbers you’ll be stuck defending.
Data Centers Are Actually Great for Communities (But You Have to Explain Why)
One of the biggest misconceptions: data centers don’t create many jobs, so communities push back.
Here’s what Mark tells communities: “You’re not going to be having to build a lot of schools, which are expensive to build and operate, but we’re going to generate a lot of revenue without a lot of schools.”
The reality about data centers:
- They add enormous taxable value to the tax roll
- They develop sites that might be brownfield or passed over for other investments
- The jobs they do create are high-skilled, high-paying, educated positions
- They keep talented young people in the community instead of fleeing to Dallas, Austin, or Houston
Plus, a lot of data centers are being built in smaller, rural communities with low unemployment rates – places like West Texas, the Panhandle, areas outside Midland-Odessa. These communities need the tax revenue more than they need entry-level jobs.
But you will encounter “not in my backyard” pushback. Why? People confuse data centers with Bitcoin mining operations.
As Mark notes: “Some people think these are just noisy projects. Bitcoin mining is much noisier than a data center.” You need to work with the community early – with economic development foundations and local leaders – to prevent opposition from derailing the project. It’s happened in Tennessee and Virginia.
Why "Competitively Sited" Isn't Just Talk - It's Required by Law
States like Louisiana and Oklahoma are aggressive about rolling out incentives. If you’re looking at Texas – or any state – always make sure you’re competitively sited. You’ve got neighboring states that will gladly roll out the red carpet.
Here’s why this matters legally: many jurisdictions cannot legally grant incentives unless the project is demonstrably competitive. If they don’t believe you have real alternatives, they won’t offer anything meaningful.
It’s not posturing. It’s protecting your ability to negotiate.
Tax Planning Doesn't End When Construction Starts
You’re going to pay property tax on this asset in perpetuity – 10, 20, 30 years or more – until the data center is no longer on the ground.
Mark’s advice: “You want to make sure you set it up right. Obtain all the exemptions and incentives, but also think not just short-term but long-term and the repercussions of releasing too much information or shooting too high on investment and jobs you may never achieve.”
What you announce early could lock you into tax abatement agreements that last a decade. If you overpromised on value or jobs, you’ll be paying on that inflated number for years.
Smart companies:
- Structure construction contracts to maximize sales and use tax exemptions
- Classify equipment correctly from day one
- Separate tangible from intangible value
- Plan for how valuation disputes will play out over decades
- Think about power sources (if you’re eventually going nuclear, what happens to the gas turbines you’re using in the meantime?)
This Applies to More Than Data Centers
Data centers are the hot topic right now – they’ve got flash. But this strategy applies to any business:
- Manufacturing operations
- Logistics and warehouses
- Existing facilities looking to expand or modernize
If you’re an existing business in a community, don’t assume you have to stay there. You have leverage:
- “What can you do for us to stay here and expand?”
- “What incentives can you give us on new construction?”
- “Or do we pick up and go somewhere else that offers greater incentives?”
The key is the same: Move early. Know your costs vs. your value. Work with local communities. Obtain all exemptions and incentives. Make sure it’s competitively sited.
Don’t be taken for granted. Plants shut down and move to more welcoming areas all the time.
The Bottom Line
Most executives focus on power capacity, construction timelines, and connectivity. Tax exposure gets pushed down the list.
That’s a mistake. Property tax is one of your largest long-term costs.
What matters:
- Start early – before announcements, before everyone knows your plan
- Keep it competitive – real alternatives in multiple states
- Control what you say – accurate taxable numbers, not inflated project costs
- Work with the community – explain the value, address concerns early
- Think long-term – this isn’t just about year one, it’s about decades
When you get this right, your data center becomes a competitive advantage. When you rush it, it becomes a tax liability that drains value year after year.
As Mark puts it: “Under-promise and over-deliver. Come in low and deliver much more than promised.”
We make sure that’s exactly what happens.
Listen to the full discussion: ITC Tax Podcast – Episode 1: Data Centers
Ready to talk strategy before you announce your next project? Reach out to ITC Tax.