Facebook recently received a bit of a surprise from the state of Oregon in the form of a $390,000 tax bill for the massive data center it recently completed in the small town of Prineville on the east side of the Cascade Mountains.

It seems the state had decided to tax Facebook as a utility. Under the designation, Facebook had to pay a bill that superseded the deal the social networking company had made with the county.

Facebook had agreed to build its data center in Prineville, Or. due in part to the cool climate of the region and the tax breaks it would receive for building in an enterprise zone.

So it was none too happy to receive a bill that pretty much negated a big part of the reason it decided to build its data center there in the first place.

Well, as is sometimes the case in the convoluted world of tax assessments, all things don’t exactly appear as they are. According to the Oregonian newspaper, the state has decided that Facebook does not owe the $390,000 tax bill after all.

But all is still not well. The state has assessed Facebook on its land, valuing it at $1.7 million.  It won’t affect the original tax bill for Facebook that totaled about $26,000 but it does give the company pause. It has decided to challenge the state assessment.

The sticking point is a letter Facebook received in August from the state department of revenue:

“Oregon statutes require the department to assess any property, real and personal, tangible or intangible, used or held for future use by a company . . . in performing or maintaining a communications business.”

That is giving Facebook some pause. At the heart of the issue is Oregon’s definition for Facebook as a utility. Under that designation, the state could tax it differently, which concerns Facebook and economic development officials as well who are trying to recruit three more data centers to the somewhat depressed region of the state.

Services Angle

As the services economy booms, data centers are popping up all across the state of Oregon. Once smelters relied on the cheap hydropower of the Columbia. Now it’s companies like Google and others that see the advantage of locating in the Pacific Northwest.

The enterprise zones fit the needs of the data center operators but there are questions about the economic development they provide. They are meant to attract new business but do data centers fulfill the spirit of what the enterprise zones are intended to do? Data centers are filled with servers. They do require maintenance but for the most part the scaling is in the machines, not people. The question becomes one of economic value. And that is an issue that is always one heck of a political football.