Energy Surge in Georgia – Opportunities, Challenges and Tax Considerations

Georgia is experiencing rapid growth of the data center sector, which is particularly impacting the state’s energy landscape. This burgeoning industry presents both challenges and opportunities for manufacturers, construction and utility companies. In this article, we explore some of those challenges and opportunities, as well as overview tax considerations and implications of the recent data center surge.

The Data Center Boom

Data centers, the digital heart of the modern world, are energy-intensive facilities that house servers and other computing equipment. Their rapid proliferation is driven by the increasing demand for cloud services, artificial intelligence and big data analytics. As a result, states across the United States are competing to attract data center projects, and Georgia has emerged as a prime location.

The state offers several advantages for data center operators, including a favorable business climate, a skilled workforce and access to major transportation hubs. Additionally, Georgia Power’s reliable and affordable electricity supply has been a significant draw for data center companies.

A Growing Energy Challenge

Unfortunately, the rapid expansion of data centers, coupled with the surge in electric vehicle (EV) adoption and energy intensive processes of auto manufacturing, has placed unprecedented strain on the power grid. A single large data center can consume as much electricity as a small city, and the cumulative energy demand of these facilities, along with the growing number of EV charging stations and the energy-intensive operations of auto manufacturers, is growing exponentially.

To meet this challenge, Georgia Power works closely with the Georgia Public Service Commission to invest in grid infrastructure and explore new energy sources. In July 2024, Georgia Power also announced the completion of the first American nuclear reactor built from scratch in decades, an effort to address and alleviate energy shortage issues.

The utility company is also committed to understanding the specific energy needs of operators and manufacturers, as well as developing tailored solutions. By fostering open communication and collaboration, Georgia Power aims to ensure a reliable and sustainable power supply for the data center industry.

Challenges and Opportunities for Manufacturers and Construction Companies

The construction of data centers, auto manufacturing facilities, and EV charging stations represents a significant opportunity for manufacturers and construction companies. However, due to their scale, complexity, and stringent requirements, these projects also present unique challenges.

• Infrastructure demands: Facilities may require substantial infrastructure, including power substations, cooling systems and network connectivity. This creates opportunities for companies specializing in electrical, mechanical and civil engineering.
• Specialized equipment: Construction necessitates the use of specialized equipment, such as precision cooling systems, fire suppression systems and raised flooring. Manufacturers of these products can benefit from the growing demand.
• Supply chain management: The construction of large-scale projects requires efficient supply chain management to ensure the timely delivery of materials and equipment. Companies with strong logistics capabilities can gain a competitive advantage.
• Sustainability focus: There is a growing emphasis on sustainability in these industries. Manufacturers and construction companies that can offer environmentally friendly products and services will be well-positioned to succeed.

Manufacturers and construction companies that can adapt to the unique demands of these sectors will have the opportunity to thrive in the digital age. By investing in research and development as well as adopting sustainable practices, these companies can position themselves for long-term success.

Tax Considerations for Developers and Operators in Georgia

The decision to locate a data center or auto manufacturing facility in Georgia is influenced by a myriad of factors, including energy costs, infrastructure and workforce availability. However, tax implications are a critical consideration that can significantly impact the overall cost of operations.

Since 2018, the state of Georgia has offered sales tax exemptions on specific equipment, software or materials used in industrial construction. Earlier in 2024, Georgia lawmakers passed a bill proposing the suspension of these tax exemptions for two years, however, this bill was vetoed by Governor Brian Kemp in May 2024. This means the exemption will continue for at least one more year.

This is why it is crucial to note that tax incentives can change over time, and eligibility criteria may vary. Companies considering a data center or auto manufacturing facility in Georgia should consult with tax professionals to understand the specific benefits available and how to qualify.

Other Tax Considerations

Beyond tax incentives, developers and operators must be aware of the following tax implications:

• Property taxes: Expensive equipment and infrastructure create significant property value. Property taxes on both land and buildings will be a recurring expense.
• Sales and use taxes: Sales and use taxes apply to the purchase of equipment, materials and services used in operations. Careful tax planning can help minimize these costs.
• Income taxes: Companies must comply with state and federal income tax regulations. Understanding tax deductions and credits operations is essential.
• Data transfer taxes: While not currently prevalent in the United States, some jurisdictions impose taxes on data transfer. Companies should be aware of potential changes in this area.

The Importance of Tax Planning

Effective tax planning is essential for developers and operators to maximize their return on investment, especially when those projects are tied to substantial increases in energy usage. By understanding the complex tax landscape and leveraging available incentives, companies can optimize their tax position and reduce overall costs.

If you are a manufacturer or developer interested or already invested in a data center, auto manufacturing or EV charging station project, and you have questions about tax considerations and other opportunities, contact your Windham Brannon advisors today, or reach out to Micah Greenberger.