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How ICT Affects Your Site Decision

Think speed, capacity - and taxes - when considering information and communications technology issues in the location process.

Gary Yates, Director of Site Selection, Jones Lang LaSalle (Apr/May 08)
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Taxation of ICT Services
Every business carefully considers its tax situation and the possible taxes associated with a new location or new equipment. ICT equipment, services, and users are all affected by the unique taxation of ICT. Two primary taxes impact ICT: property tax and sales tax. The high cost of ICT investment has made both property and sales taxes a big capital hit for corporations seeking technology improvements.

However, there's a hidden tax that can be even more crucial for review: tax on IT services. Take for example a typical financial trade completed over a computer network. In some jurisdictions, the point of taxation is the location of the data server. Thus, if there is a trading firm in New York City, a client in Dallas, and a server farm in Arizona, Arizona collects tax on the trade just because the technology resides in that state. These taxes on ICT services are gaining interest throughout the country.

Economic Incentives
In an effort to spur investment and offset the slowing economy, The Economic Stimulus Act of 2008 provides the opportunity for small businesses to increase the amount of capital expenses they can deduct under Section 179 of the tax code to $250,000 and also allows bonus depreciation on qualifying tangible property. In order to initiate investment this year, qualifying property can be depreciated 50 percent of purchase cost in the first year rather than over several years.

The unintended consequence of the federal depreciation bonus is that most states have a policy of "rolling conformity" with the federal tax code. The Center on Budget has identified 22 states that could face revenue loss from the bonus. In addition, 16 other states are expected to face shortfalls in FY2009. Why does this matter for ICT and site selection? As states continue to experience revenue shortfalls in conjunction with rising budgets, many will have no choice but to look toward new methods of taxation, which may ultimately deter infrastructure development in certain states.

Economic incentives abound to offset taxes and capital investment. These incentives can take the form of an exemption, rebate, forgivable loan, grant, accelerated depreciation, or infrastructure improvements. Two key points to remember when talking about incentives on ICT equipment: (1) ICT equipment and software is replaced frequently, and incentives should be structured to cover replacement every 3-5 years; and (2) school taxes (when part of personal property tax) are not frequently included in any tax exemption structure.

As the global economy has shifted from the production of physical goods (the Industrial Age) to the manipulation of information (Information Age), there has been an increasing emphasis on ICT services. ICT services were often taken for granted in business development, but this can no longer be the case. As technological advances have taken place and the business economy has shifted to the global stage, ICT issues have become important criteria in the site selection process and decision.
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