Tangible personal property taxes imposed by state and local governments are placing disproportionate burdens on data centers and other technology-intensive facilities compared to traditional manufacturers, according to a new report published by the National Taxpayers Union. The analysis, authored by Senior Fellow Jared Walczak as part of a three-part series on data center taxation, concludes that these levies on business equipment like servers, cooling systems, and generators are economically inefficient and particularly harmful to industries at the cutting edge of technological innovation. For modern data centers, servers alone can easily be worth billions of dollars, and in many states all of that equipment faces annual property taxation.
Among the top 20 states for data center investment, 13 currently impose tangible personal property taxes while seven exempt such property from taxation entirely. Depreciation schedules used to value aging equipment often dramatically overstate its worth: in a server's third year of operation, when it would likely need replacement in a high-tech facility, Florida still values the equipment at 56% of its original cost, while Indiana, Missouri, North Carolina, Oregon, and Washington treat it as at least 40% functional. Arizona values most newly acquired business personal property at 2.5% of original cost with no further depreciation, while other states use schedules running four to eleven years for servers. Many states set residual value floors of 5% to 20%, meaning equipment retains taxable value indefinitely even when functionally obsolete. The United States stands as one of only seven countries among the 38-member Organisation for Economic Co-operation and Development that tax personal property, with most other nations having moved away from the practice.
Research cited in the report shows these taxes carry significant economic costs. One study examining the Washington, DC, metropolitan area over 25 years found that a one percentage point higher personal property tax rate reduced annual employment growth by 2.4 percentage points, which the authors characterized as an "economically large negative effect." A separate Alberta, Canada, study determined that for every one mill increase in non-residential property taxation, the total value of annual building permits declined by $39.37 per capita. The report notes that many states provide by-right exemptions for manufacturing machinery and equipment that remove those assets from the tax base entirely, but data centers rarely qualify for these exemptions, which usually apply to specific industry classifications.
The report explains that tangible personal property taxes function as an annual surcharge on capital investment, lowering the after-tax rate of return on new spending and creating a bias against capital-intensive production. Unlike real property taxes on land and structures—which can be justified as benefit taxes since local services like schools and infrastructure enhance property values—the same rationale doesn't extend to movable equipment. A lathe or server doesn't increase in value because a community has better schools, the way a home does. Standard depreciation schedules struggle to keep pace with rapid technological advancement in server technology, where cutting-edge microchips become virtually obsolete within a few years. An older piece of manufacturing machinery may be worth less because it's nearer to breakdown, but a three-year-old server may still function yet already be functionally worthless compared to newer models. The result is taxation that slows the rate of new investment, making it more expensive for data centers to refresh servers and undercutting both their competitiveness and the outside jobs associated with supporting these facilities' constant technological upgrades.
The report recommends that governments avoid imposing new tangible personal property taxes, while existing levies should be repealed or reformed to eliminate complex depreciation schemes that overstate the taxable value of quickly obsolete technology. Where these taxes remain on the books, states should simplify valuation methods, adjust depreciation schedules to modern realities, and avoid discriminating between data centers and other technology-heavy industries when creating relief provisions. The analysis warns that heavy tangible personal property taxation not only slows investment in cutting-edge facilities but also raises costs for the countless Main Street businesses that rely on cloud services in their daily operations, ultimately bearing some of the burden through higher prices.