Update 8/6/2009: Microsoft’s Mike Manos provides needed clarification of Microsoft’s move of the Windows Azure platform from its Quincy, Washington, data center in his The Cloud Politic – How Regulation, Taxes, and National Borders are shaping the infrastructure of the cloud post of 8/6/2009. See end of this post.
Update 8/5/2009: Rich Miller picked up this post and wrote Microsoft Migrates Azure, Citing Tax Laws on 8/5/2009 for the Data Center Knowledge blog. Mary Jo Foley’s Tax concerns to push Microsoft Azure cloud hosting out of Washington state of 8/5/2009 covers the same ground. Mike Amundsen provided a link to Washington SB 6666, which has strange digest language; see end of this post.
The Windows Azure Team announced in their Migrating from “USA - Northwest” post of 8/3/2009:
In the next few weeks, we’re going to disable the “USA - Northwest” option for new applications. Existing applications will continue to run unaffected, and you’ll continue to be able to modify and update your existing applications.
Why the change?
This change is in preparation for our migration out of the northwest region. Due to a change in local tax laws, we’ve decided to migrate Windows Azure applications out of our northwest data center prior to our commercial launch this November. This means that all applications and storage accounts in the “USA - Northwest” region will need to move to another region in the next few months, or they will be deleted.
The only other region that I’ve seen active for Azure hosted services and data storage is “USA-Southwest,” located in San Antonio, Texas.
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Background on “Local [Sales] Tax Laws”
Wikipedia’s Quincy Washington topic says in it’s “A role in the high-tech economy” section:
In July 2006, it was reported that high tech giants such as Google, Yahoo, and Microsoft were building facilities for hosting computer server farms because of the cheaper electricity from the Columbia River. The local utility district offered the companies electricity about half the national average.
Current construction by Microsoft of a 1.5 million square foot facility will hold 150,000 computers, with an expected rise with further construction to 800,000. However, as of February 8, further development of these projects is stalled and continued development is in doubt, as the Washington State tax climate changed to the tech giants' disadvantage.
The “tax climate change” appears to be failure of the state to exempt data centers from a 7.9% sales tax on construction and equipment, as reported in the Data Center Knowledge blog’s Microsoft, Yahoo Halt Quincy Projects post of 3/12/2009 by Rich Miller:
Microsoft and Yahoo have halted construction on their multi-facility data center campuses in Quincy, Washington while state legislators debate a tax break for data center projects, according to local media reports. Late last year Washington State attorney general Rob McKenna ruled that data centers were no longer covered by a state sales tax break for manufacturing enterprises, and thus must pay a 7.9 percent tax on data center construction and equipment. McKenna ruled that the data centers “do not produce a product which is sold to the companies’ customers” and thus aren’t manufacturers.
A story in today’s Seattle Post-Intelligencer … titled “High-tech giants seeking massive tax break,” updates the story and takes a critical look at the tax breaks and the business case for data centers in eastern Washington.
Gov. Chris Gregoire requested an exemption in Senate Bill 6666, which would restore the exemption for data centers. In the meantime, the Internet titans have shelved plans for additional investment in Quincy, a small farm town that had 5,300 residents when it was selected for the Microsoft project. Yahoo, Ask.com, Intuit, Sabey Corp. and Base Partners have since announced projects in central Washington. Real estate prices have surged in Quincy, which the Washington Post dubbed “the Klondike of the Internet era.”
And its Washington State ‘Server Farm’ Tax Break Fails post of 3/19/2009 also by Miller:
Legislation in Washington state that would have restored a tax break for data centers won’t be passed in 2008, leaving Microsoft (MSFT) and Yahoo (YHOO) to mull the future of their plans to continue building in the state. Last month Microsoft and Yahoo halted construction on their multi-facility data center campuses in Quincy, Washington while state legislators debated the tax bill.
The tax package was drafted after the state ruled that data centers were no longer covered by a state sales tax break for manufacturing enterprises, and thus must pay a 7.9 percent tax on data center construction and equipment. Gov. Chris Gregoire requested an exemption in Senate Bill 6666, which would restore the exemption for data centers. The bill was caught up in tax politics, with media terming it a $1 billion tax break for high-tech giants.
“To be honest, we just didn’t have time.” Rep. Mike Armstrong, R-Wenatchee told local media. “We’ll see what we can do for the next session,” which begins in January 2009.
Doug Flanagan’s Hi-tech study for port progressing article of 7/30/2009 in the Quincy Valley Post Register newspaper is the only recent story I’ve been able to find about Quincy, WA’s data centers:
The Quincy Port District is trying to convince Jack Boyd, head of a Princeton, N.J., consulting firm, that Quincy is the nation’s top small town for data center technology.
He’ll have a chance to judge for himself first hand this week.
Boyd was scheduled to arrive in Quincy on Monday, July 27, to take tours and talk with officials in preparation for a study that Boyd Consulting is preparing that will rank the nation’s best small towns for data center technology.
The Quincy Port District agreed to contact Boyd to discuss the feasibility of such a study earlier this month.
Boyd was scheduled to meet with port officials, representatives from the City of Quincy and Grant County Public Utility District representatives.
“If this report comes back and says that Quincy is a dynamite place for high technology, we all would want to be informed about that,” said port president Curt Morris. “(Boyd) is moving forward on the study that we requested. We hope it says that Quincy is a favorable location for hi-tech companies to come here
If Microsoft and other Internet service providers have canceled expansion plans for Quincy data centers, I’d be surprised if the Port District would be able to demonstrate Quincy qualifies as “the nation’s top small town for data center technology.”
Updates of 8/5/2009 and Later
Update 8/5/2009: Thanks to Mike Amundsen (@mamund), here’s a link to SB 6666 - 2007-08: Providing partial sales and use tax exemptions for certain computer server equipment. Here’s the bill’s digest:
Provides partial state sales and use tax exemptions in respect to the purchase or use of server equipment comprising only the server chassis and all computer hardware and software contained within the server chassis, where the server equipment replaces existing server equipment in certain buildings constructed or refurbished to house servers and located in a rural county as defined in RCW 82.14.370(5). [Emphasis added.]
The emphasized “replaces existing server equipment” language appears strange to me. If you’re building a new data center, the hardware and software is new and doesn’t “replace existing server equipment.”
Update 8/6/2009: Mike Manos adds background to Microsoft’s move of the Windows Azure platform from its Quincy, Washington, data center in his The Cloud Politic – How Regulation, Taxes, and National Borders are shaping the infrastructure of the cloud post of 8/6/2009:
There was a recent article at Data Center Knowledge regarding Microsoft’s decision remove its Azure Cloud platform out of the State of Washington and relocate them (whether virtually or physically) to be run in the state of Texas. Other articles have highlighted similar conversations with Yahoo and the state of Washington, or Google and the state of North Carolina. These decisions all have to do with state level taxes and their potential impact on the upfront capital costs or long term operating costs of the cloud. You are essentially seeing the beginning of a cat and mouse game that will last for some time on a global basis. States and governments are currently using their blunt, imprecise instruments of rule (regulations and taxes) to try and regulate something they do not yet understand but know they need to play apart of. Its no secret that technology is advancing faster than our society can gauge its overall impact or its potential effects and the cloud is no different. …
Lets pretend you own a cloud and have just sunk 100M dollars into a facility to house part of your cloud infrastructure. You spent lots of money in your site selection and up front due diligence to find the very best place to put a data center. Everything is going great, after 5 years you have a healthy population of servers in that facility, you have found a model to monetize your service, so things are going great, but then the locale where your data center lives changes the game a bit. They pass a law that states that servers engaged in the delivery of a service are a taxable entity. Suddenly that place becomes very inhospitable to your business model. You now have to worry about what that does to your business. It could be quite disastrous. Additionally if you rule that such a law would instantly impact your business negatively, you have the small matter of a 100M asset sitting in a region where you cannot use it. Again a very bad situation. So how do you architect around this? Its a challenge that many people are trying to solve. Whether you want to face it or not, the ‘Cloud’ will ultimately need to be mobile in its design. Just like its vapory cousins in the sky, the cloud will need to be on the move, even if its a slow move. Because just as there are forces looking to regulate and control the cloud, there are also forces in play where locales are interested in attracting and cultivating the cloud. It will be a cycle that repeats itself over and over again.
Mike continues with an analysis of other regulations, such as privacy for personally identifiable information, that are subject to differences in data center domicile.
Mike currently is responsible for the global data center design, construction, ongoing operations and professional services for Digital Realty Trust, his past roles include similar responsibilities at Microsoft Corporation, and leadership roles at Walt Disney, Rhythms NetConnections, and Nuclio Corporation (now part of Sun Microsystems).
It’s time for a Microsoft executive to ring in on this topic.