Dive Brief:
- Kroger has received a 75% state sales tax exemption for technology equipment bought for its Ohio data facilities from the Ohio Tax Credit Authority, according to a press release.
- The 15-year exemption applies to equipment that will be used at Kroger’s two data centers in Blue Ash, Ohio, and a technology facility in Hamilton, Ohio, that supports the data centers. Both cities are located close to Cincinnati, where Kroger is headquartered.
- Kroger said the tax exemption will help it cover the cost of new equipment for the data facilities, which house a significant portion of the technology that lies behind its digital services, as well as updates to hardware and software.
Dive Insight:
Kroger may be a purveyor of groceries at its core, but the supermarket chain has increasingly drawn attention to its investments in technology infrastructure as it prepares for the future. The announcement that the company has landed a significant tax incentive to invest in its data centers continues that story.
Kroger has been working to differentiate itself in the grocery industry by strengthening its in-house information-processing capabilities. In 2015, the company converted a joint venture with dunnhumby, a British company that helps retailers develop customized offers for consumers, into 84.51°, a wholly owned subsidiary tasked with helping Kroger sharpen its digital prowess. The grocer uses its data-mining capabilities for a range of tasks, from personalizing product recommendations for shoppers to providing insights for its alternative businesses.
Executives from 84.51° have recently been promoted to top corporate positions at Kroger, reflecting the premium the grocery store operator is placing on technology talent as it looks to the future.
In another example of its focus on technology, Kroger is plowing resources into developing automated fulfillment centers in partnership with British grocery automation specialist Ocado, and in June announced its next three planned warehouses in the Pacific Northwest, West Coast and Great Lakes regions.
The exemption Kroger received from Ohio frees it from having to pay the lion’s share of the 5.75% Ohio state sales tax that would ordinarily apply to the equipment it needs to maintain and modernize its data operations in the state. To qualify for the tax exemption, Kroger has to put at least $100 million into capital investments at the three facilities for three calendar years in a row and pay a minimum $1.5 million in annual compensation to workers.
States compete fiercely to attract and hold onto employers, often dangling reductions in taxes as a way to stand out from other regions as companies decide where to locate facilities — and, by extension, jobs, which economic development officials hope will complete the circle by generating local economic activity. Ohio faced competition from Oregon, North Carolina and California as it sought to ensure that Kroger would not move the operations it depends on for its increasingly data-centric business out of the state, the Cincinnati Business Courier reported.
Ohio has used offers to waive its sales tax to convince other companies to maintain data centers within its borders. Google won a 15-year, 100% sales tax exemption from the state in connection with a $600 million data facility in New Albany, Ohio, that it started constructing last November. In June, H5 Data Centers, which leases space in data centers it runs to other firms, said it had received approval from Ohio for a 100% sales tax exemption that its customers can take advantage of if they get state approval.
