Overview:
- The Michigan Senate has passed a two-bill package granting substantial tax breaks to large data centers operated by companies like Google and Microsoft.
- The legislation, approved in a bipartisan vote, would exempt massive "enterprise" data centers from sales and use taxes on equipment through at least 2050.
- Proponents argue the incentives are critical to attracting data center investments to Michigan, while critics warn they could undermine the state's climate goals and burden utility ratepayers.
- Environmental advocates are concerned that the energy-intensive facilities will exacerbate Michigan's reliance on fossil fuels, even as the state aims to achieve 100% renewable energy by 2040.
The Michigan Senate has passed a two-bill package granting substantial tax breaks to large data centers operated by companies like Google and Microsoft. The legislation, approved late Thursday in bipartisan votes, now heads to Governor Gretchen Whitmer for her signature.
The bills, HB 4906 and SB 237, would exempt massive “enterprise” data centers from sales and use taxes on equipment through at least 2050 (or 2065 for brownfield sites) and extend existing tax breaks for smaller colocation centers.
Proponents argue the incentives are critical to attracting data center investments to Michigan, while critics warn they could undermine the state’s climate goals and burden utility ratepayers.
Advocates say data centers undermine climate goals and will cause utility rates to soar
Environmental advocates are concerned that the energy-intensive facilities will exacerbate Michigan’s reliance on fossil fuels, even as the state aims to achieve 100% renewable energy by 2040. Last year’s clean energy package includes an “offramp” provision allowing fossil fuel plants to stay online if renewable capacity falls short, which advocates fear the data centers will trigger.
“These tax breaks just blew a hole in their own clean energy package,” Christy McGillivray, legislative and political director for the Sierra Club Michigan Chapter, previously told Planet Detroit.
The facilities can also require vast amounts of water for cooling, up to 5 million gallons per day. Advocate Nichole Keway Biber, an organizer with Clean Water Action, told Planet Detroit that lawmakers should require facilities to recycle water rather than relying on groundwater.
“This is the moment to get this right,” Biber said.
Learn more
Democrats ‘blew a hole’ in Michigan climate plan with data center bills, advocate says
The Michigan House approved a bipartisan measure exempting large data centers from sales tax, sparking debate over environmental impacts on the state’s climate goals and water resources.
Are Virginia’s power-hungry data centers a warning for Michigan?
As Michigan considers tax breaks for data centers, Virginia environmental advocates warn data centers could kill state climate goals while thousands of generators may cause a spike in air pollution.
Michigan data centers would destroy state’s nation-leading climate plans, opponents charge
Data centers would give Michigan tax credits to tech giants while potentially providing electric utilities an “off-ramp” from the MI Healthy Climate Plan.
The infrastructure upgrades required to serve energy-hungry data centers could also lead to higher utility bills for residents. Abby Clark, Midwest campaign manager for the Natural Resources Defense Council, previously told Planet Detroit that industrial and commercial customers in Michigan already pay much lower rates than residential users, a disparity that could grow if utilities absorb additional costs.
“Water and energy costs will be passed on to ratepayers,” Clark said, adding, “They could build these without tax breaks and still get favorable rates.”
Law makers expect significant local tax revenue from data centers
Supporters, however, see the tax incentives as a way to bring much-needed investment to underutilized industrial areas. Sen. Kevin Hertel, D-St. Clair Shores, told Bridge Michigan that the tax breaks could unlock “real, big economic development projects” in communities like his district, which is home to a former DTE Energy coal plant that closed in 2022.
“This is an opportunity for economic development projects critical to communities that need investment and local property tax revenue,” Hertel told Bridge Michigan.
For example, a proposed data center in Benton Harbor is expected to generate $21 million in annual property taxes, which supporters argue could provide a lifeline for the region.
However, data centers would likely create few jobs. The Switch Inc. data center near Grand Rapids received tax breaks in 2015 after promising to create 1,000 jobs in 10 years. But by 2022 the company had only hired 26.
Frustration with data centers’ preferential energy rates, climate impacts and poor return on investment has led lawmakers in South Carolina, Georgia and Connecticut to rethink their tax breaks.
The House Fiscal Agency estimated that the exemptions would reduce state and local tax revenue by approximately $2.5 million per year.
Tax breaks for the ‘mega-wealthy’, but few safeguards
Amendments proposed earlier this year aimed to address concerns by requiring data centers to source water from municipal systems, prevent residential ratepayers from subsidizing infrastructure costs, and mandate renewable energy use.
Some of these provisions are included, but advocates like McGillivray argue they are insufficient to fully protect Michigan’s environmental and economic interests while giving millions to wealthy corporations.
Clark argued that Democrats had just come off a “tough election cycle ” and should work to address resident concerns about high prices and ensure clean air and water.
“No one I know has ever heard (from) a voter that they want more tax breaks for California-based companies,” she said.
Governor Whitmer has not publicly stated whether she will sign the bills. However, DTE Energy CEO Jerry Norcia previously told shareholders the governor supports the legislation, Planet Detroit previously reported.