Education, Government, and Technology

Switch, school districts reach agreement on tax dispute

Kent ISD, Caledonia will not return any taxes paid out by data center.

November 8, 2019
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A tentative agreement was reached between Switch and two West Michigan school districts regarding a tax break dispute.

The agreement between Switch, a data center in Gaines Township, Kent ISD and Caledonia Community Schools was reached due to legislation that was introduced by a Michigan lawmaker earlier this year in an effort to clarify the Renaissance Zone Act, the Property Tax Act and the Renaissance Zone Development Agreement that placed the data center and the school districts at odds over tax payments that include $676,000.

According to Chris Glass, director of legislative affairs at West Michigan Talent Triangle, the agreement has three components only unique to Switch.

“The first component requires that the tax tribunal case in relation to the taxes that are already paid out for by Switch and its clients will be dropped,” he said. “What that means is that the school districts will not be returning any taxes that were paid out by Switch and its clients.

“The second component is the legislation will be amended to require Switch to pay taxes on their real property, and there will be an additional agreement that requires that amount to increase by 10% per year, at a minimum. As long as they are in the renaissance zone, it will increase by 10% per year, at a minimum.”

Real property tax is for the land that the data center is on. A renaissance zone is an economically disadvantaged area that is designated for redevelopment. 

The property that Switch now occupies is considered a renaissance zone because it is on the site of what was once the Steelcase Pyramid building, which was left vacant for years.

“The third (component) would require trailer legislation or follow-up legislation.” Glass said. “In 2015, when the data center sales and use tax expansion bills were signed into law, they were done so with the promise that the school aid fund would be reimbursed for exempted revenue. And what these bills would do, since that revenue has not been reimbursed to the school aid fund, these bills would make sure that that reimbursement occurs. The sales and use-tax exemptions apply to all co-located data centers.”

Adam Kramer, executive vice president of strategy at Switch, did not return requests for comment.

However, in previous reporting by the Business Journal, Kramer said Switch agreed to operate under the Renaissance Zone Act which, he said, exempts them from paying certain taxes. When the Renaissance Zone Development Agreement was signed in 2016, Gaines Township was not collecting personal property taxes from Switch in 2017 and 2018.

“Neither Switch nor our clients received a tax bill as agreed upon with the creation of the Renaissance Zone Act,” Kramer previously said. “Then, this year, we found out that there was a ‘conflict in law between the Renaissance Zone Act and the Property Tax Act.’”

Although the township was not collecting taxes for two years, the Renaissance Zone Development Agreement that Switch signed states, “The company and the owner acknowledge that the benefits provided under MCL 125.2689 do not include relief from the payment of certain property taxes relating to bonds, school sinking fund obligations and special assessments described in MCL 211.7ff.”

Thus, because of the discrepancies between the Renaissance Zone Development Agreement, Renaissance Zone Act and the Property Tax Act, the agreement was reached between Switch and the school districts.

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