New data centers present 'opportunities and challenges' to Utah's tax system, researcher says

SALT LAKE CITY — With growing attention to the possibility of new data centers, University of Utah researchers are saying such development would have a potentially mixed impact on taxpayers.

Still, a new brief prepared by researchers at the University of Utah's Kem C. Gardner Policy Institute doesn't offer definitive answers on the topic. Rather, it warns of potential tax volatility, particularly in less-populated counties, and calls for careful attention to the matter by communities where data center proposals are in the works.

"Data centers present both opportunities and challenges for Utah's property tax system," Maddy Oritt, director of public finance research at the institute, said in a statement Monday accompanying the new brief, "Data Centers and Utah's Property Tax." "Understanding how Utah's truth-in-taxation system treats real and personal property is essential for evaluating the long-term fiscal impacts of individual projects. Careful, project-specific analysis can help communities maximize the benefits of data center investment while minimizing unintended tax shifts for existing taxpayers."

According to an earlier report by the institute, Utah was home to 48 operational data centers as of April, when the study came out, with seven "massive" new facilities in the works. A month after that report, news emerged of another proposed data center, a sprawling operation in Box Elder County spearheaded by Canadian businessman Kevin O'Leary, which has sparked heated public debate across Utah, matching debate around the country on the topic.

In that context, the new brief released Monday addresses the potential property tax repercussions in locales where data centers launch. Much of the debate about the O'Leary project and other data center proposals focuses on their potential environmental effects, but the new study doesn't delve into that aspect of the issue.

On the plus side for taxpayers, new facilities would likely provide "initial property tax relief," the study states.

Taxes on the real property portions of data centers — land and the new buildings sitting on it — would boost tax revenue entering local government coffers due to the resulting jump in property valuation, presuming the property isn't part of a special taxing district.

Meantime, the personal property portion of the development, like servers and other equipment, would potentially have a mixed impact on tax bills. Different guidelines and rules apply to taxation of personal property compared to real property.

Tax revenue coming from personal property "may initially decrease property taxes for existing taxpayers," according to the report. However, as the value of the property depreciated from year to year, the tax revenue it generates would also go down, resulting in "rapidly increasing taxes" for homeowners and others who pay property taxes to offset that dip.

"Replacing data center personal property can potentially trigger a cycle of initial tax decreases for other taxpayers followed by offsetting future increases, resulting in a 'boomerang' or 'yo-yo' effect," reads the Kem Gardner report. Smaller, more rural counties would likely experience more volatility, though phased replacement of the personal property could temper the effects by minimizing the effects of depreciation.

Either way, the report suggests that attention ahead of time to the potential tax impacts can help keep them in check. "Policy treatment of data centers' real and personal property, combined with how quickly data centers materialize, will shape the magnitude of these effects," it reads.

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