New incentive proposal aims to get Colorado into data center recruitment game
Feeling that Colorado has fallen way behind other states in the effort to attract capital-intensive data centers, a bipartisan pair of senators is pushing the state to offer significant tax breaks to attract the facilities — and is finding support on both sides of the aisle.
The Senate Transportation & Energy Committee on Wednesday advanced Senate Bill 280, which would offer 100% sale-and-use-tax exemptions for up to 30 years for data-center developers who build projects and hire at least 25 full-time employees. The measure, sponsored by Democratic Sen. Nick Hinrichsen of Pueblo and GOP Minority Leader Paul Lundeen of Monument, heads to the Senate Appropriations Committee after a 6-3 vote in which a trio of committee Democrats joined all its Republicans in backing it.
Data centers represent both a significant economic-development opportunity and a potential strain on the nation’s electric grid as artificial intelligence and smart devices require the processing and storage of heretofore-unseen amounts of data. Though the facilities can run with relatively small staffs, they require massive ongoing investments in equipment and connection to infrastructure, which has left states competing to nab the economic boosts and temporary construction jobs they create.
What data-center bill would do
Colorado, however, is not currently a viable competitor with the roughly 30 states that offer sales-tax breaks on data-center construction equipment, leaving even Denver-based firms in the sector concentrating their efforts elsewhere. And as areas of the state like Pueblo County look for significant industries to replace the shuttering coal-fired power plants that have been the hearts of their economies, SB 280 sponsors believe they should have a chance to attract these centers.
The bill would offer full sales-and-use-tax exemptions on data-center equipment for 20 years to companies certified as eligible for the breaks by the Colorado Office of Economic Development and International Trade. Those firms could get 10-year exemption extensions if they also make at least $5 million in electric-grid enhancement investments, create 10 more jobs than the minimum required and comply with environmental requirements.
Lundeen told the committee,
Welcome to the future, the future that is unfolding all around us.
“And I mean ‘all around us’: It’s happening in pretty much every state except Colorado right now, and we’d like to do something about that,”
“This isn’t just about data centers. It’s about all the sectors and industrial sectors and economic sectors and, quite frankly, comfort and quality of life of the people of Colorado.”
Environmental pushback
But opponents — a coalition of environmental-advocacy groups and liberal fiscal organizations — said the race for data centers is also about states throwing gobs of money at deep-pocketed developers without receiving commensurate community benefits. Data centers place significant burdens on the energy grid — often requiring upgrades whose bills are footed by everyday utility customers — and consume enormous amounts of water in a time of drought to cool their constantly running equipment, they warned.
And while Hinrichsen pleaded for this as a potential economic lifeline for his area after the Comanche 3 power plant shuts down in 2031 and takes $25 million in annual economic impact with it, the bill gives communities like his no particular help, they said. Sponsors rewrote the proposal before Wednesday’s hearing and removed the advantages it had sought to offer to data centers that locate in “just transition” communities, noted Justin Brant, utility program director for the Southwest Energy Efficiency Project.
The sales-tax exemption, which will cost Colorado $16.7 million in revenue loss in the fiscal year beginning July 2026, requires only 25 fulltime jobs paying 110% of average county wages, said Anita Seitz, Colorado Communities for Climate Action advocacy director. A better plan would have required community benefit plans, incentivized grid modernization or mandated greater protections for area water sources, she and other critics said.
Seitz said,
We see that data centers can be a part of a thriving Colorado,
“But this broad approach is not specifically tailored to what we think are the pressing needs.”
Are proposed data-center incentives generous enough?
But even as opponents tried to label the incentive bill as a corporate giveaway without big rewards, data-center sector leaders countered that for all the discussions that went into the bill, Colorado’s effort would be far less generous than most of its competitors’.
The sales-tax exemption, for example, only applies to the 2.9-cent state sales tax rather than the larger local sales-tax amounts, which can only be reduced on a city-by-city basis, said Sarah Monaghan, director of policy for Vantage Data Centers North America. Colorado also has not offered to exempt sales tax on energy usage by the data centers, she added.
And unlike most other states, Colorado would require incentive-program applicants to submit environmental sustainability plans focused on water stewardship and facility energy efficiency. And it would require them to pay union-level prevailing wages, though an amendment added to the bill on Wednesday clarified that both union and non-union companies would be eligible for the incentives.
Monaghan said,
I would say that the industry agreed to a lot of provisions and requests in this bill that don’t exist in other jurisdictions, including in some blue states that have recently incentivized data centers,
But even if the incentives aren’t at the level that a state like Texas would offer, they would get Colorado a seat at the table that it doesn’t currently have for a sector that contributes $312 billion to state and local tax bases, even with the breaks it gets. Colorado has 50 data centers, but none bigger than a comparatively small 18-megawatt center in the Denver area, and both Vantage and Denver-based Stack Infrastructure acknowledged that all their centers now are being built outside the state.
Sen. Lisa Cutter of Morrison, who joined with fellow Democratic Sens. Kyle Mullica of Thornton and Faith Winter of Broomfield in voting against the bill Wednesday, said there are too many risks in the proposal. She doesn’t believe there are enough guardrails to protect communities, is concerned utility ratepayers will have to subsidize upgrades to the grid to accommodate these data centers and is worried about the effect of the program on the state budget, she said.
Hinrichsen, however, said that Colorado must get into the game to attract these centers, which particularly can benefit communities on the fringe of urban areas that have open space, reliable power sources and a workforce to build the facilities. While the bill may not specify that they must go to a place like Pueblo, it sets up to give it and similarly transitioning communities a golden opportunity that it couldn’t have without incentives.
Hinrichsen said,
We’re heading for this cliff. But with data centers, we have a really, really unique opportunity,
“This is an opportunity that we are uniquely poised to capitalize on — but that we’re not going to be able to capitalize on without this.”
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New incentive proposal aims to get Colorado into data center recruitment game, source
