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Microsoft further builds up Iowa's tech cred

David Pitt, Associated Press

DES MOINES, Iowa (AP) -- Microsoft announced plans Friday to build another massive data center in Iowa, which has attracted some of the biggest names in computer technology by exempting crucial ingredients for processing and storage from sales taxes as well as offering cheap electricity.

The Iowa Economic Development Authority approved $20 million in job creation tax incentives for Microsoft, which plans on spending more than $677 million to build the first phase a project in West Des Moines, near its existing data center. Additional phases could be added later. The company plans on hiring 29 workers.

It's the third major information technology company to invest more than $1 billion in Iowa in recent years. Facebook and Google also have chosen Iowa for data centers — large buildings that house thousands of refrigerator-sized racks of computer servers, processors, hard drives, and other equipment.

The developments are being spurred by a 2009 law specifically covering data centers exempts electricity, computers and other equipment from sales taxes, and another law from the same year that exempts computers and other equipment — cooling systems, cooling towers and equipment related to electricity distribution or management — from property taxes.

Typically, cities and counties also offer property tax breaks in addition to building streets to the sites.

"Right now we're seeing data centers at this level continuing to scale up across the globe," said Iowa Economic Development Director Debi Durham. "Legislation Iowa put in place many years ago is creating this business climate."

Sales tax breaks are important for these companies because they equip data centers with costly computer servers and other equipment that must be replaced every three years, said Mark Bramfitt, an industry consultant who focuses on data center energy use. A server can cost $2,000 and a data center can have 20,000 or 30,000 of them — sometimes more.

Microsoft has spent about $200 million on its existing data center on 40 acres in West Des Moines, which opened last year and employs about 50 workers. Construction on the new one nearby will begin late this year and is expected to be finished by the end of 2015.

Microsoft's total spending is expected to reach about $1.2 billion when finished, Durham said. Elsewhere in the state, Google has a $600 million data center in Council Bluffs and recently committed to a second $700 million center. And Facebook is building a $300 million center near Altoona but says it could triple the size of the project to exceed $1 billion.

Each company received additional state tax breaks for creating jobs, including $20 million for Microsoft's latest project.

Far from threats of earthquakes and hurricanes, Iowa is also considered a prime location because the state can offer abundant electricity at a reasonable cost, Bramfitt said. The large data centers being built today demand between 20 megawatts and 40 megawatts of electricity, enough to power between 15,000 and 30,000 homes.

"They're tremendous energy users," Bramfitt said. "They require the juice of a small town."

The average retail industrial price for power in Iowa was 5.21 cents per kilowatt-hour in 2011, the latest year for which comparable data was available from the U.S. Energy Information Administration. The only states with lower rates were Idaho and Utah, both at 5.10 cents per kilowatt-hour. The surrounding states of Illinois, Michigan, Minnesota, and Nebraska all had rates exceeding 6 cents a kilowatt-hour.

Iowa also leads the nation in percentage of power generated from wind energy — 25 percent from more than 2,800 wind turbines — which is important to companies such as Microsoft, Facebook and Google. Microsoft said it will buy renewable energy credits to offset carbon emissions from its new data center. Google in 2010 entered into a long-term agreement to buy wind energy from a central Iowa wind farm, and last year, it invested $75 million in another one.

Data centers are important to companies such as Microsoft because of the increased use of cloud computing. Cloud computing allows the companies to provide massive computer processing and storage of photos, music and other data for customers using smartphones and tablet computers. Microsoft, for example, says it offers 200 services over the Internet, including its search engine Bing and Microsoft Office 365. The company also says it will require significant expansion of data center servers for its Xbox Live video game system.

Other companies that are heavily investing in data centers around the country include Apple, Amazon and eBay.