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Is Your Facility Being Overtaxed?

An ever-increasing demand for the construction of new data centers together with the conversion of older industrial properties for this use, has resulted in a growing inventory of property that is poorly understood and often mishandled by assessing authorities. For owners and managers of data center properties an overvaluation can result in disproportionate tax liability that threatens the profitability of your enterprise. It is therefore critical that your representation have a thorough understanding of the pitfalls and errors to which data centers are uniquely vulnerable, and that your representation aggressively defend your property against over-valuation.

Limiting Valuation to the Real Estate

Assessing authorities often look to recent sale prices in valuing data center properties, making the incorrect presumption that the purchase price was based exclusively on real estate value. In so doing, assessors may erroneously include the value of the fixtures, equipment and business value which, for this type of property, are primary drivers of value for the property as a whole, but which must be excluded from the valuation of the real estate. The closing documents of record may not clearly delineate allocations for real property and personal property making it difficult for assessing authorities to properly exclude personalty and business value. Errors of this type can result in substantial over-valuation and drive up your tax liability by many multiples. To be confident that your property isn’t over-taxed your representation must do a comprehensive review of any sales price used to develop a value for your property whether it be for your own property or the sale of another data center used for comparison in assessor’s analysis.

Data Centers Shouldn’t Be Penalized for the Way They Value Land

Threshold considerations in the development of any data center are the availability of reliable power to drive the servers, access to water for cooling of the interior environment and, and the availability of a fiber optic network. The confluence of these factors substantially increases the value of the land to a data center developer, but not to other market participants. Assessing authorities have from time-to-time unfairly over-valued the land underneath data-centers in consideration of these factors. Whether or not land is purchased by a data center developer, it should be uniformly assessed with other similar parcels in the taxing district. Pursuit of equitable assessment demands an analysis not only of your building value, but of the site on which the property is situated to ensure that you’re not being unfairly valued because of the land that it sits on.

Size Doesn’t Matter. Power is What Counts

Although data centers have been part of the property landscape for decades, the drivers of value remain poorly understood by local assessing authorities. Nearly all assessors continue to value data center properties according to square footage. Owners and managers of data centers know well, however, that the primary driver of value for a data center is its power and capacity, neither of which are directly tied to the size of the physical space. Until assessors come to terms with the metrics that actually drive value for data center properties, they will continue to make substantial valuation errors, often to the detriment of the taxpayers. It is therefore essential that your representation understand the metrics that determine value for your property and that they be able to decouple the valuation of the physical building from the valuation of the property as whole to ensure that you are equitably assessed. Let us show you how the collaborative insight of our strategic teams, experienced attorneys, and seasoned tax professionals can powerfully augment the success of your data center enterprise.