Colorado’s lawmakers are dangling $17 million in tax breaks to lure artificial intelligence data centers to the state. But AI data center subsidies are money losers that can cost states more than just tax revenue.
The proposed tax breaks are generous, featuring a 100% state sales and use tax exemption for 20 years. The hope is that attracting data centers will modernize infrastructure and bring jobs. The reality is these projects consume massive amounts of resources, and their utility as job creation engines remains an open question at best—the bill only requires the creation of 25 full-time jobs with average pay that’s 110% of the county average.
What’s certain is how much water AI data centers need to operate. Onsite, evaporative cooling systems guzzle clean water to keep server racks from overheating. Offsite, even the electricity that powers these centers can require water-intensive generation. A single large AI model can drink up millions of gallons of water during the training phase—before any users have asked it to generate a picture of a cat riding a tricycle.
Colorado is ill-equipped to handle that. After two decades of drought, the state is already overextended on its water budget. Climate models suggest this shortage is the new normal. With much of Colorado’s water heading out of state due to legal compacts, subsidizing a new, ultra-thirsty industry seems more like a self-inflicted liability than a forward-looking investment.
Legislators should at least condition the tax breaks on strict water efficiency standards. They could require on-site recycling systems, dry or hybrid cooling mechanisms, or even tie the incentives to specific locations in the state where the water supply may be less stressed.
If Colorado policymakers want to welcome in the AI industry, they should ensure the state doesn’t get drained in the process.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined a Supreme Court ruling’s potential impact on ERISA litigation, the IRS’s Advance Pricing and Mutual Agreement program, and more.
The Exchange—It’s where great ideas on tax and accounting intersect.
Insights
Immigrants Are a Hidden Cost of the IRS Data Sharing Agreement
Cybersecurity attorney Jean-Marc Appolon says a deal for US Immigration and Customs Enforcement to share immigrants’ data with the IRS should be a call to action for legal and tax pros to help vulnerable clients.
Fiduciaries Face Higher ERISA Litigation Risk After SCOTUS Ruling
Thompson Hine’s Tim McDonald and Nate Ingraham say that the Supreme Court’s decision in Cunningham v. Cornell University shifts early-stage litigation risk toward ERISA plan fiduciaries by lowering the pleading threshold for prohibited transaction claims.
As US Retrenches, Regional Economic Pacts Show the Way Forward
International Tax and Investment Center President Daniel Witt explains how regional economic cooperation is thriving throughout the world and is bringing a new reality to US tax and trade discussions.
Brazil’s New Indirect Tax System Creates More Chance for Errors
Trench Rossi Watanabe attorneys examine Brazil’s new tax law, which introduces changes that could lead to different interpretations by tax authorities and the judiciary after it takes effect next year.
IRS’s Successful APA Program Faces New Obstacles, Opportunities
Baker McKenzie experts say the IRS’s Advance Pricing and Mutual Agreement program remains an effective process, but workforce reductions and volatile tariff policies could pose difficulties.
Supreme Court’s ERISA Ruling Will Test Procedural Safeguards
Moore & Van Allen attorneys say employee benefit plans and ESOP transactions will become prime litigation targets following the Supreme Court’s ruling in Cunningham v. Cornell University.
UK Targets Tax Evaders With New Rewards for Whistleblowers Plan
Andersen’s Andrew Parkes outlines the UK’s proposed tax whistleblower program and explains some of the issues that need to be considered.
Accounting’s Future Hinges on Better Intangible Asset Reporting
CFA Institute’s Sandy Peters says two accounting standard-setting boards must improve financial reporting rules for intangible assets such as software and branding, or else risk the rules becoming irrelevant.
Nigeria’s New Financial Reporting System Raises Auditing Stakes
FIRST E&P’s Adegbola Thomas says Nigerian companies must focus on proactive governance, as the country’s new financial reporting system relies more on real-time data and automation.
Columnist Corner
The Department of Government Efficiency shouldn’t gain access to the IRS’s individual taxpayer data, Andrew Leahey says in his latest Technically Speaking column, arguing that DOGE hasn’t proven establishment of adequate privacy safeguards.
A lawsuit against Sweden’s tax authority for sharing personal information with data brokers and marketers—which the Swedish agency justified by citing constitutional transparency—shows that “noble pretense doesn’t help taxpayers when privacy is treated more like an administrative inconvenience than a priority,” Andrew writes. Read More
News Roundup
EU to Consider Changing Its Minimum Tax Law to Quell US Tensions
The European Union next week will consider potential changes to its 15% minimum corporate tax law in a bid to ease tensions with the US.
Baker Tilly, Moss Adams Cut Deal to Form 6th Largest CPA Firm
US accounting firms Baker Tilly Advisory Group LP and Moss Adams LLP said Monday they will merge to compete as a middle market leader in a deal valued at $7 billion.
Cracks Emerge in Support for Trump’s Tax-Free Tips, Overtime Ideas
Divisions are emerging in Congress over making President Donald Trump’s promises to exempt taxes on tips and overtime into law.
NY Budget Delay Nears 15-Year Record as Talks Hit Key Stage
A key New York lawmaker said Thursday that the state legislature could approve by the end of next week a new budget expected to top $252 billion.
Tax Management International Journal
Has the IRS Found the Next Swiss Bank John Doe Summons Program?
US taxpayers who used foreign financial institutions’ services named in recent John Doe Summons cases should review ownership of foreign accounts and entities to ascertain US tax liability and reporting requirements and consider using the IRS voluntary disclosure programs, say Akerman practitioners.
UN Global Mobility Focus Addresses Tax Asymmetry, Competition
The UN’s Tax Committee’s recent session identified tax asymmetry and tax competition as core issues that will affect the regulatory approach countries will take on taxing global workforces, says a Grant Thornton practitioner.
How Uncertain and Unexpectedly High Tariffs Will Impact TP
KPMG practitioners analyze how the imposition of tariffs may affect multinationals pricing their intercompany transactions and the additional risk of tax authority disputes.
Tax Management Memorandum
Deregulatory Actions Hit the Tax World in Real Time
The Priority Guidance Plan’s reflection of the Trump administration’s deregulatory agenda presents both opportunities and risks for taxpayers, say KPMG practitioners.
Career Moves
Martin Fiore was appointed EY’s Americas vice chair for tax in New York, effective July 1.
If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.
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