At a May 13 webcast hosted by PricewaterhouseCoopers (PwC), a panel of tax specialists argued that a sophisticated and integrated tax strategy, implemented from the very beginning of a project’s lifecycle, is a critical component for success.
AI Boom Creates Urgent Need for Integrated Tax Strategy
The sheer scale and speed of the current AI-driven data center boom require a fundamental shift in how tax is viewed within an organization, according to the experts. The development of multi-gigawatt campuses involves billions in capital, a multitude of stakeholders, and an array of innovative financial structures. This environment creates considerable headwinds, making early and strategic tax planning essential to ensuring capacity can be delivered on time and on budget. The webcast explained.
“We’re seeing complexity and supply chain constraints, certainly in power constraints and sort of innovative approaches to meeting the power demand,” said Matt Cardamone, principal of Capital Projects & Infrastructure at the firm. He explained that this complexity is amplified by the scale of capital expenditures, the number of stakeholders, and the innovative financial structures being used.
“Because of those structures and those partnerships, that involves a lot of tax strategy and the need to think about tax early in the process of planning for a data center,” Cardamone explained.
Key Considerations in Financing and Site Selection
The financing phase is where foundational decisions are made that ripple through the entire project. Sam Blossom, a partner in Merger & Acquisitions Tax at PwC, noted an evolution in how major technology companies are approaching their energy needs, moving from simple power procurement to directly acquiring independent power producers. These complex deals involve a computer user, a power developer, and multiple streams of capital, making it crucial to understand the competing objectives of every party.
“Take some time to understand the environment and those different players,” Blossom advised. “What are the objectives, or the key objectives of those other players, so you can help understand where your desires are going to have tension in terms of getting a deal across the line.”
From a private capital perspective, the tax structure must accommodate a diverse investor base. “With private capital and infrastructure funds, you bring in U.S. and non-U.S. capital,” said Tom Hylton, a principal in the Real Estate and Infrastructure practice. He noted that with investments spanning multiple states and even countries, “there are very significant tax questions to answer.”
He stressed the importance of structuring for the entire investor base, asking, “Does a non-U.S. investor want to be filing a Maryland tax return? Probably not.”
Preserving Value Through Build and Operations Phases
As a project moves from financing to the plan, build, and operate phases, tax considerations become central to preserving value and maximizing return on investment. The panel stressed that tax incentives represent a worthwhile opportunity but also pose a risk if not handled correctly. “The biggest trap I see is bringing the credits and incentive strategy in too late,” warned Khalid Rasti, a principal in Tax Credits and Incentives at the firm. “The risk is that the credit incentives analysis comes in after key decisions have already been made.”
He explained that qualifying for bonus credits requires meeting complex prevailing wage and apprenticeship (PWA), domestic content, and foreign entity of concern rules, which must be planned for early.
Once a data center is operational, the tax work is far from over. For entities structured as a real estate investment trust, or REIT, constant monitoring is required to meet quarterly asset and income tests. A failure could be disastrous, Hylton noted, describing a “nightmare scenario” where an entity goes from potentially zero tax to a full federal income tax. Likewise, for tax credits, the compliance obligations are continuous.
“I wish we can just set it and forget it,” Rasti said. “The credit work does not stop when the project is placed in service.” Events like repairs, ownership changes, or major equipment swaps can trigger PWA requirements or, more critically, a recapture of the credit.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
