Tax Breaks Are Boosting Amazon’s Data Center Building Boom

“These data center tax breaks weren’t here ten years ago, but then again, we certainly didn’t have the prevalence of cloud apps as we do today,” said Zeus Kerravala, founder and principal analyst at ZK Research.

Fueled by tax incentives such as exemptions from property taxes, Amazon’s unprecedented pace of data center global expansion is continuing as the public cloud leader invests billions of dollars each year to build and expand hyperscale data centers.

The ability for Amazon to increase its data center footprint at such a rapid pace is, in part, thanks to heavy tax breaks being implemented in the United States and around the world as governments aim to incentivize companies to construct new data centers or renovate existing ones with the hopes of bringing local jobs and opportunities to their region.

“These data center tax breaks weren’t here ten years ago, but then again, we certainly didn’t have the prevalence of cloud apps as we do today,” said Zeus Kerravala, founder and principal analyst at ZK Research. “Ten years ago, companies weren’t thinking cloud first, but today they are. So it’s created more demand for more data, which drives up demand for data centers, which creates competition, right? Because everyone wants these data centers in their state or region.”

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The Argentine National Congress recently passed the Knowledge Economy Law to promote digital economy investments with the promise of generous tax incentives for technology firms. Earlier this month, Amazon unveiled plans to invest $800 million in a new data center in Argentina. The public cloud giant reportedly decided to locate the new data center in the southwest of the Buenos Aires province so it can benefit from the free-trade zone’s tax breaks.

Amazon’s $800 million investment includes tax incentives such as a reduction in Argentina’s income tax rate to 15 percent from 35 percent as well as cheaper energy and labor costs. This week Amazon bought nearly 350 acres across three sites near Bahia Blanca, Argentina.

In Oregon this week, local authorities agreed to give Amazon a total exemption from property taxes for 15 years in order to allow the company to build a new data center campus in Hermiston, Oregon. It is also worth noting that there is no sales tax in Oregon. Amazon is now preparing to start construction on its seventh data center in northeastern Oregon.

Kerravala said networking innovation speed is also fueling the data center building boom. “In Argentina, for example, you can now service most of Latin America with low latency and connectivity where you couldn’t have at one time,” he said. “So the speed of networks and tax breaks have really allowed any country to now compete in this global economy for the data center business.”

Amazon did not respond to comment by press time.

Amazon and Microsoft have opened the most new hyperscale data centers over the past 12 months, accounting for over half of the total new data centers being built across the globe, according to Synergy Research Group. Amazon has consistently been one of the leaders in capex data center spending over the last several years, which hit record-setting levels of $128 billion in 2018.

Hyperscale data centers are large facilities containing tens of thousands of servers and other IT equipment. The companies with the broadest hyperscale data center footprint are Amazon, Microsoft, Google and IBM, each of which have 60 or more centers located in the four major regions around the world.

Amazon’s data center portfolio now spans 69 availably zones in 22 geographic regions around the world with plans already started on more than a dozen new regions in Italy, Indonesia and South Africa.

In 2019, Amazon launched data centers in Bahrain, its first cloud availability region in the Middle East, and spent approximately $120 million on land for data center construction in northern Virginia where it already has its largest availability region.