By Brian Everstine

The Associated Press

OLYMPIA — Even as majority Democrats call for the closure of tax loopholes as they try to address the state’s $2.8 billion budget deficit, new exemptions are making their way through the legislature.

The biggest new loophole is a proposed 15-month sales tax exemption for data centers. Central Washington’s cheap power and ample real estate have drawn corporations to build server farms and other data centers in Washington, but the state’s tax system has begun to push them elsewhere.

In 2007, state Attorney General Rob McKenna ruled that data centers were not covered by a different state sales tax break because they do not produce a product to be sold. Since then, tech corporations have looked outside of Washington to build the centers. Redmond-based Microsoft decided last summer to move a data center out of Washington to Texas because of the state’s tax laws. Facebook chose Prineville, Ore., for a new data center.

“We would be the front runner to capture those jobs and those data centers,” said Sen. Joseph Zarelli, R-Ridgefield, the minority’s budget chief and a sponsor of the bill. “We would capture a very large employer into the state of Washington and get them engaged in creating jobs.”

The proposed exemption does not have an estimated cost to the state, because if the exemption isn’t approved, the data centers will not come, said Sen. Ed Murray, D-Seattle. The corporations building the facilities will be exempted from sales tax if they come, but will still need to pay property tax and utilities.

And most of all, they will create jobs, Murray said.

“We’ve heard from communities in Eastern Washington that it will create jobs that otherwise will go to other states,” Murray said. “We need to ask, ’Does it actually create more money than we lose in the exemption? From everything we’ve seen, these data centers are very, very profitable for the states.”

In January, the business-oriented Washington Research Council determined that the four existing data centers, along with two leased in existing facilities, in Central Washington have provided about $1.17 billion in revenue for Chelan, Douglas and Grant counties. Microsoft, Yahoo, Intuit, Ask.com and Sabey Corporation run data centers in Central Washington.

Construction of the data centers between 2004 and 2008 created more than 1,000 jobs, according to the report. New data center development could contribute $25.6 million each year in new earnings for the region.

Other proposals include tax exemptions for churches that hold farmer’s markets, for aircraft used to provide ambulance services for nonprofits and a sales tax reduction for online versions of the state’s newspapers

“We have to be competitive with other states if we want these jobs,” said Rep. Ross Hunter, D-Medina. “My opinion on incentives is to only do incentives when you absolutely need it and it’s the absolute right time.”

Lawmakers announced last week they plan to save the state $174 million by closing more than two dozen loopholes, including breaks for mortgage lenders, private airplane owners and coin dealers.

While the Legislature’s minority members support the proposed exemptions, they aren’t enough, said Rep. Gary Alexander, R-Olympia. The proposed budget will harm the state’s economy and cost more jobs as the taxes rise, he said.

“If we find ways to ‘incentivize’ our employers and our business community to invest more in their own futures, that will pull us out of this recession much more than anything we do on the government level,” Alexander said.

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The proposed tax exemption for data centers is Senate Bill 6789. Look it up at http://www.leg.wa.gov