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The Data Center Divide

King County

Neutral Data Center Policies

King County authorized a long-term lease for one data-center project; tax exemptions are scheduled to expire in 2026, potentially raising costs for new projects and expansions.

Incentives

Tax benefits

The operative statute provides qualifying data-center businesses and tenants a sales-tax exemption for eligible server equipment and installation services and eligible power infrastructure and related labor, materials, equipment and services. Businesses must be located in a county with a population over 800,000. Classification concerns the exemption statute, not the attached restrictive amendment proposal.

Washington RCW 82.08.9861

current law · County measure
Provides a sales-tax exemption for qualifying businesses and tenants purchasing eligible original server equipment, installation services and power infrastructure at eligible urban Washington data centers, subject to certification, employment, reporting, sustainability and applicable labor requirements.Washington RCW 82.08.9861

What this means

The bill would end the data-center sales and use tax exemptions in 2026, including exemptions for server equipment and power infrastructure, making new projects and expansions more expensive ([the exemptions expire July 1, 2026](https://lawfilesext.leg.wa.gov/biennium/2025-26/Htm/Bills/Senate%20Bills/6231-S.htm#:~:text=The%20exemptions%20provided%20in%20this%20section%20expire%20July%201%2C%20((2038))2026)). It does not ban data centers or add operating rules, so this is a meaningful loss of financial support rather than a major development barrier.

People behind it

  • Originally sponsored the measure.

  • Originally sponsored the measure.

  • Introduced the substitute bill.

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  • Requested the measure.

Restrictions & requirementsHide restrictions & requirements16

  • The sales- and use-tax exemptions for data centers are terminated on July 1, 2026, and no new exemption certificates may be issued on or after that date.

  • To qualify under RCW 82.08.986, a data center must be located in a rural county and its construction, expansion, renovation, or refurbishment must fall within specified construction-date windows ending before July 1, 2026.

  • To qualify under RCW 82.08.9861, the business must be located in a county with more than 800,000 people, must demonstrate at least 1.5 megawatts of available power, and must submit supporting records, requests for proposals, pricing, and marketing materials.

  • An exemption certificate is available only after an application is submitted; the exemption applies only to purchases made on or after the application date, with no refunds for earlier purchases.

  • Exemption certificates generally expire two years after issuance unless construction has commenced, creating a deadline to begin construction.

  • The department may issue no more than six certificates for qualifying businesses in the first calendar year and six in each of calendar years three through six under RCW 82.08.9861; applications are processed first in time.

  • For refurbished data centers under RCW 82.08.986, no more than six certificates may be issued each calendar year, and each qualifying business may apply for only one refurbished-data-center certificate per year.

  • A qualifying tenant under RCW 82.08.9861 must contract for at least 150 kilowatts of electrical capacity for server and computer equipment, and a tenant previously qualifying under RCW 82.08.986 or RCW 82.12.986 must reapply if it expands into a qualifying business.

  • Within six years after certificate issuance, the business or tenant must create and maintain the required family-wage employment positions: generally three positions for each additional 20,000 square feet dedicated to working servers under RCW 82.08.9861, or under RCW 82.08.986 the lesser of 35 positions or three positions for each 20,000 square feet or less.

  • Family-wage positions must generally be full-time positions paid at least 125 percent of county per-capita personal income and covered by employer-provided health insurance; failure to satisfy the employment requirements can cancel the certificate and require repayment of exempted taxes, subject to limited exceptions or extensions for circumstances beyond the business's control.

  • A newly constructed data center covered by the sustainability requirement must obtain certification under an approved sustainable-design or green-building standard within three years after being placed in service; failure can cancel the certificate, make exempted taxes due, and impose an additional 10 percent penalty, subject to limited exceptions or extensions.

  • Qualifying businesses and tenants must file annual tax-performance reports identifying construction firms and employment levels; information in the report under RCW 82.08.9861 is generally available for public disclosure.

  • A certificate cannot be assigned or transferred without the Department of Revenue's prior written consent, and transfers are allowed only to specified related, successor, or acquiring entities that accept and perform the certificate's terms.

  • A data center must have at least 100,000 square feet in total and at least 20,000 square feet dedicated to housing working servers to qualify as an eligible computer data center.

  • Stand-alone, prefabricated, modular, or intermodal-shipping-container units do not qualify as eligible computer data centers, and under RCW 82.08.9861 data centers refurbished on or after July 1, 2026, are excluded.

  • The tax exemption is limited to qualifying for-profit businesses that own eligible data centers and qualifying for-profit tenants; governments, political subdivisions, and specified public or government-created entities are excluded.

Benefits & exceptionsHide benefits & exceptions15

  • Provides a sales-tax exemption for qualifying businesses and tenants purchasing eligible server equipment and related installation labor for eligible computer data centers, provided they have a valid exemption certificate. The exemption is limited to qualifying equipment installed without intervening use and applies only to purchases made on or after the certificate’s issuance date.

  • Extends the sales- and use-tax exemption to eligible power infrastructure, including labor, materials, equipment, and services used to construct, install, repair, alter, or improve infrastructure such as generators, wiring, cogeneration equipment, switches, batteries, and distribution or monitoring equipment. Substations are excluded.

  • Allows qualifying businesses and tenants to claim the corresponding use-tax exemption for eligible server equipment, power infrastructure, and related installation labor and services, but only when the sales-tax exemption requirements are satisfied.

  • Permits existing data centers that were previously ineligible to qualify after refurbishment, and permits certain existing employment positions to count toward the required employment increase for those facilities. The provision also allows previously qualifying data centers undergoing refurbishment to count existing eligible positions.

  • Creates a first-in-time application process for refurbished data centers and authorizes the Department of Revenue to issue up to six refurbishment certificates per calendar year, with each qualifying business limited to one refurbished-data-center certificate per year.

  • Allows owners and qualifying tenants to satisfy employment requirements by counting certain eligible positions held by the owner, tenants, and qualifying contractors, allocated in proportion to tenant-occupied space where applicable.

  • Allows the Department of Revenue to grant exceptions or extensions when employment requirements are not met because of circumstances beyond the business’s or tenant’s control, including an economic recession, pandemic, or natural disaster. Any resulting tax repayment must be proportional to the period of noncompliance.

  • Allows exemption certificates to be transferred with the Department of Revenue’s prior written consent to related entities, entities acquiring substantially all of the certificate holder’s stock or assets, or entities resulting from a merger or consolidation, provided the transferee is qualified to do business in Washington and agrees to follow the certificate’s terms.

  • For data centers qualifying under the rural-county program, permits facilities with at least 20,000 square feet dedicated to working servers and construction commencing during specified historical or pre-July 1, 2026 periods to qualify, including certain expansions, renovations, refurbishments, and leased or rented space.

  • For data centers qualifying under the program for counties with populations over 800,000, requires the qualifying business to demonstrate at least 1.5 megawatts of available power, while allowing qualifying businesses and tenants to apply for certificates through a first-in-time process. The provision authorizes six qualifying-business applications in the first calendar year and six applications in each of calendar years three through six.

  • Makes exemption certificates effective on the date the Department of Revenue receives the application, allowing qualifying purchases made on or after that date. Certificates generally expire two years after issuance unless construction has commenced.

  • Permits qualifying tenants in the high-population-county program to claim the exemption when they contract for at least 150 kilowatts of electrical capacity for server and computer equipment, subject to the program’s other requirements.

  • Requires newly constructed data centers using certificates issued on or after June 9, 2022, to obtain certification under an approved sustainable-design or green-building standard within three years after being placed in service, including standards such as BREEAM, Energy Star, Envision, ISO 50001, LEED, Green Globes, or UL 3223.

  • Allows the Department of Revenue to provide exceptions or extensions from the sustainable-design certification requirement when noncompliance results from circumstances beyond the business’s or tenant’s control, including a recession, pandemic, or natural disaster.

  • Continues the exemptions for qualifying data centers only through July 1, 2026, and bars issuance of new exemption certificates on or after that date; use-tax treatment also excludes equipment and infrastructure first used on or after July 1, 2026.

Sources

current law · County project: King County enterprise data center at Sabey Data Center, Building Five, 3355 South 120th Place, Seattle
This ordinance designates Sabey Data Center Building Five as King County’s enterprise data-center location and authorizes a 30-year lease of approximately 11,474 square feet for the county’s data-center facility.King County Ordinance 16213 (2008)

What this means

This provides a modest, project-specific benefit by designating Sabey Building Five as the county’s enterprise data center and authorizing a long-term lease for a data center facility. It mainly enables this county project; it does not broadly encourage other data centers or create general rules for their development and operation.

People behind it

  • Bill sponsor of Ordinance 16213

  • Bill sponsor of Ordinance 16213

  • Bill sponsor of Ordinance 16213

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  • King County Executive who approved the ordinance

Restrictions & requirementsHide restrictions & requirements18

  • The premises may be used only to operate the County’s data system and related office space; any other use requires the landlord’s prior written consent, and the County may not abandon the premises or substantially reduce continuous operations. Permitted uses

  • Installing or materially changing tenant equipment requires submission of detailed equipment information and installation plans at least thirty days in advance, followed by landlord approval; the County must also pay the landlord’s reasonable review and oversight costs. Approval is deemed granted if the landlord does not respond within ten days. Equipment approval requirements

  • The tenant’s electrical usage may not exceed 1.2 megawatts, including its share of shared cooling equipment; the landlord may audit usage and require immediate disconnection of noncompliant equipment, with additional power costs charged to the County. 1.2 megawatt limit

  • Alterations, including changes to locks, cages, wiring, or other improvements, require the landlord’s prior written consent, approved plans and specifications, and work by licensed contractors acceptable to the landlord. Alterations require prior written consent

  • The County must comply at its own expense with applicable environmental, health, safety, zoning, building and other laws, and may not use the premises for activities involving hazardous substances that could expose the landlord to remediation costs or penalties. Environmental-law obligations

  • The County must pay the actual cost of landlord-provided tenant improvements up to $9.5 million, due within thirty days after substantial completion; it must also pay for tenant-requested additional services and tenant-initiated field changes. Tenant improvement contribution

  • Construction of the facility is subject to substantial-completion requirements, including completion of landlord’s work, issuance of a City of Tukwila certificate of occupancy or temporary certificate, and written confirmation by the County’s facilities director that the premises can be used for the permitted purposes. Substantial-completion requirements

  • The lease requires the data center to maintain specified operational performance, including N+1 mechanical and electrical capability, continuous normal and backup power, and limits on downtime to 1.6 hours annually, corresponding to 99.98 percent uptime. Performance requirements

  • The facility must satisfy specified design and capacity standards, including N+1 systems and electrical capacity of 150 watts per square foot for the data-center area. N+1 and 150-watt-per-square-foot standards

  • Data-center construction and operation must include specified security, fire protection, environmental monitoring, telecommunications, grounding and cabling systems, including secured areas, one-hour fire separation, VESDA or similar smoke detection, and pre-action fire protection. Essential performance requirements

  • Expansion into approximately 3,114 square feet of adjacent data-center space is subject to the landlord’s right-of-first-refusal process: the County has only ten calendar days to accept a third-party offer, and its acceptance requires King County Council approval by ordinance within forty-five days. Expansion right and council-approval condition

  • Assignment, subleasing or other transfer of the lease generally requires the landlord’s prior written consent; the lease’s expansion and renewal options are personal to the County and generally terminate upon assignment or subleasing, subject to specified exceptions for permitted assignees and qualifying reorganizations. Assignment and sublease restrictions

  • The County must maintain or fund substantial insurance coverage, including workers’ compensation and employer’s liability, $5 million per-occurrence commercial general liability, property and business-interruption insurance, and $1 million automobile liability coverage, unless it qualifies for the specified self-insurance arrangement. Insurance requirements

  • In addition to base rent, the County must pay its share of taxes, building operating costs, shared-infrastructure operating costs, and electrical utility costs; these charges include maintenance, security, utilities, repairs, equipment replacement and other facility operating expenses. Additional-rent obligations

  • Shared infrastructure, including generators, switchgear, transformers, chillers, pumps and related systems, is operated and maintained by the landlord, while the County pays its allocated infrastructure costs and separate electrical charges. Shared infrastructure and operating costs

  • Rooftop antennas or satellite dishes require landlord approval, and the landlord may require removal on fifteen days’ written notice if the equipment interferes with other tenants or leasing; installation, maintenance and removal costs are assigned to the County in the circumstances specified. Rooftop antenna restrictions

  • Access to the building and premises is subject to the landlord’s security system and procedures, although the County is entitled to reasonable 24-hour access; additional security required because of the County’s use is charged to the County. Access and additional-security provisions

  • Parking is nonreserved and first-come, first-served, subject to market-rate charges and rules that the landlord or parking operator may change over time. Parking charges and rules

Benefits & exceptionsHide benefits & exceptions10

  • Authorizes a thirty-year lease for approximately 11,474 square feet at Sabey Data Center Building 5 for the County's enterprise data center. authorizing the King County executive to enter into a thirty-year lease agreement

  • Provides automatic lease renewals totaling eighteen additional years—two five-year periods followed by two four-year periods—unless the County gives at least twelve months' notice that it will vacate. Renewal rent increases by three percent per year, and no new improvement allowance or free-rent period applies.

  • Requires the landlord to construct the tenant improvements for the data center and office space, with costs capped at a $9.5 million not-to-exceed amount, subject to the lease's tenant-contribution terms. committed to constructing the Tenant Improvements at its sole cost and risk for a total not-to-exceed price of $9,500,000

  • Sets a construction deadline requiring substantial completion within 270 days after lease execution, with liquidated damages of $50,000 at 300 days, an additional $100,000 at 330 days, and an additional $150,000 at 360 days. If required payments are not made or a final certificate of occupancy is not issued within 390 days, the County may terminate the lease.

  • Grants the County a right of first refusal during the lease term for approximately 3,114 rentable square feet of adjacent data-center space, on substantially the same terms offered to a third party. The County must accept within ten calendar days, and expansion requires County Council authorization by ordinance.

  • Requires the landlord to maintain and operate shared electrical and mechanical infrastructure, including generators, switchgear, transformers, chillers, pumps, piping, ductwork, and controls, in a professional and industry-standard manner comparable to other data centers.

  • Provides operational infrastructure and access, including generator-backed electricity for the server floor up to 1.2 megawatts, maintenance of chilled-water and standby-power systems, and reasonable access to the premises twenty-four hours a day.

  • Limits certain pass-through costs for 2009: infrastructure operating costs are capped at $3.40 per square foot per month, and the County's share of operating costs is capped at $0.87 per square foot of data-center space.

  • Protects the County's occupancy if the landlord's underlying prime lease ends: the building owner agrees to recognize the County's lease as a direct lease, assume the landlord's obligations, and credit amounts already paid, provided the County is not in default.

  • Restricts landlord changes to public areas by prohibiting changes that reduce the premises, materially interfere with access or use, or diminish services required under the lease.

Sources

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