Kentucky lawmakers pass bill to provide tax breaks for crypto miners

According to Chain News, the Kentucky House Budget Committee approved House Bill 230, which exempts business tax obligations arising from the purchase of electricity for cryptocurrency mining operations. The bill is now transferred to the Senate for review and has been added to the Senate's tax relief bill for cryptocurrency mining operations.

Kentucky lawmakers on Tuesday approved millions of dollars in new state tax breaks in an effort to attract a large, high-tech facility that could create an unknown number of jobs.

The House Budget Committee passed House Bill 372, which would exempt companies like Amazon, Facebook and Google from sales and use taxes when they open data centers in the state. The annual cost of the bill would start at $15 million and could increase, according to a fiscal note attached to the bill.

The fiscal note goes on to say, “If many entities take advantage of this exemption, the negative impact on the General Fund would be significant when fully implemented.”

To qualify for the tax breaks, which are guaranteed for 30 years, tech companies must agree to create at least 20 permanent jobs and spend at least $150 million over five years to build and equip one or more data centers where computer servers will run continuously.

A trade association for technology companies called NetChoice is encouraging states to enact tax breaks so they can compete with one another for data centers. NetChoice representatives told a House panel on Tuesday that Kentucky should compete, and that states like Virginia and Ohio are already celebrating ribbon-cuttings.

“Virginia recovers more than $1 in state revenue for every $1 in state taxes it exempts for data center equipment and purchases,” testified NetChoice consultant Barbara Comstock, who helped craft Virginia’s data center tax break while serving in the Virginia Legislature.

“As a former state legislator, I certainly appreciate your challenge to the state budget,” Comstock said. “But I can tell you, and this is the headline news that I continue to see in my local community, is what a resilient industry is, and the thing about the data center industry that has remained resilient even as other factors during the pandemic have reduced revenue, is that the economy, the gift that keeps on giving.”

Some members of the committee’s Democratic minority raised skeptical questions about how many jobs would be created in cavernous buildings filled with computers and whether tech giants like Amazon and Facebook, among the wealthiest companies on the planet, really need to withhold taxes from Kentucky’s budget as part of their expansion plans.

"I'm not entirely sure it's going to pay off," said state Rep. Josie Raymond, D-Louisville.

"I don't think Facebook needs tax vouchers. I think Facebook is going to do what Facebook is going to do, and I don't expect them to provide better snacks to their employees in California with the blessing of Kentucky," Raymond said.

However, NetChoice representatives urged the House committee to consider the positive impacts on local communities where data centers might be built.

“Once we finish the build, we’ll have up to 100 data center employees on board, and we’ll be paying those people good salaries. So it’s going to be a minimal impact on the local community, but all the jobs are good paying,” said Steve DelBianco, president of NetChoice.

“The top investment heroes in the U.S. are technology companies,” DelBianco added. Those technology companies made $70 billion in capital investments in the U.S. alone last year. That’s more than any other industry, including energy, pharmaceuticals, telecommunications, or manufacturing. The fact is, for the past eight years, no enterprise data center like the one I’ve been describing has been located in Kentucky or any other state that imposes sales tax on data center equipment.

The committee voted 18 to 2 in favor of the data center tax break.

“I’m very much in favor,” said state Rep. Robert Goforth, R-East Bernstadt. “I hope that when these data centers start looking at Kentucky, they’ll look at my district.”

Next, the committee approved House Bill 230, which would eliminate sales taxes on electricity purchased by crytocurrency mining operations. The panel voted 19-2 on the resolution.

The bill's fiscal note estimates general fund costs to start at $1 million per year. But the full cost after that cannot be determined because "it is unclear how many businesses would choose to take advantage of this exemption here," legislators wrote.

Mining cryptocurrencies, such as Bitcoin, is a complex process. Miners use large rooms filled with high-powered computers to solve complex math problems and unlock new currencies. Next, they store the resulting transactions in blocks; the combined public record is called a blockchain.

The bill's sponsor said Tuesday that Kentucky needs to attract more cryptocurrency mining and could do so by offering tax breaks on the large amounts of electricity consumed by facilities.

“It takes a lot of electricity to mine cryptocurrency,” said state Rep. Steven Rudy, R-Paducah. “It’s very much an industrial type of product. It’s not just a couple of guys sitting in their mom’s basement or their parents’ basement writing code. This is actually very complex, very technical.”

Core Scientific announced two years ago that it would open a blockchain facility in an abandoned steel mill in Marshall County. Today, Rudy told his colleagues that the plant uses more electricity for cryptocurrency mining than the steel mill.

But Rudy said he didn't have specific numbers when some committee members asked him how many jobs the high-tech equipment would create or how much electricity it would use.

In January, Kentucky economic development officials approved tax incentives for Blockware Mining to start a cryptocurrency mining operation in a leased space in Paducah, with a total investment of $28.4 million. Blockware Mining reportedly plans to create 10 jobs with an average hourly wage of $23, including employee benefits.

Some Democrats on the panel said they questioned the wisdom of losing state revenue to attract a profitable industry that already has plants within Kentucky. They said the fact that the facilities consume so much electrical energy is not a good thing for the state.

"Why do we want this industry in Kentucky in particular?" Raymond asked.

“We want more industry,” Rudy replied. “We welcome industry here.”

The Kentucky Senate is advancing its own cryptocurrency mining tax relief bill, Senate Bill 255.

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John Cheves is a government accountability reporter for the Lexington Herald-Leader. He joined the newspaper in 1997, having previously worked in its Washington and Frankfort bureaus and covered the court beat.