Tax concerns to push Microsoft Azure cloud hosting out of Washington state

Microsoft is making preparations to move applications that developers are hosting on its Azure cloud infrastructure out of its Washington state datacenter, due to a change in the tax laws there.

Microsoft is making preparations to move applications that developers are hosting on its Azure cloud infrastructure out of its Washington state datacenter, due to a change in the tax laws there.

Microsoft warned customers testing their apps on the Azure test release about the planned change earlier this week. Microsoft is readying a migration tool to help testers with the move, company officials said.

Cloud-computing and .Net expert Roger Jennings put together all the various reports and clues into a detailed August 5 post on his OakLeaf Systems blog.

As Jennings noted, on August 3, the Windows Azure team announced plans to disable the "USA - Northwest" option for new Azure-hosted applications. (Existing applications that are part of the Azure beta may be allowed to remain hosted in the Quincy, Wash., datacenter, as the Microsoft blog post says. Later on, the team appears to contradict that fact, however, saying all apps and storage would be moved.)

From the Azure team's post:

"This change is in preparation for our migration out of the northwest region. Due to a change in local tax laws, we’ve decided to migrate Windows Azure applications out of our northwest data center prior to our commercial launch this November. This means that all applications and storage accounts in the 'USA - Northwest' region will need to move to another region in the next few months, or they will be deleted."

Earlier this year, there were reports that Microsoft (and Yahoo) had halted datacenter construction in Quincy. At that time, many company watchers believed the halt was likely temporary and was due to the poor economy. It turns out it was due to a Washington state tax change, as DataCenter Knowledge explained.

"Late last year Washington State attorney general Rob McKenna ruled that data centers were no longer covered by a state sales tax break for manufacturing enterprises, and thus must pay a 7.9 percent tax on data center construction and equipment."

(Washington State Governor Chris Gregoire is trying to restore the exemption for data centers, according to a Seattle Post-Intelligencer story cited by Jennings.)

Jennings speculates that Microsoft might be moving its U.S.-based Azure-hosted applications to its San Antonion datacenter.

I've asked Microsoft for more information on this, including what is going to happen to its Quincy datacenter. I'm also asking whether the decision to move the Azure-hosted apps out of Quincy will stand if a tax exemption comes to pass. If and when I receive responses to these questions from Microsoft, I'll update this post.

Update: So far, this is all Microsoft is willing to share on this matter. A corporate spokesperson sent me the following e-mailed statement:

"Beyond the information in the Windows Azure team blog post that you referenced in your post this afternoon, we don't have additional specifics to share about the Windows Azure data migration from NW to SW datacenters."

Update No. 2 (August 6): The aforementioned Microsoft spokesperson just e-mailed a second statement, with an answer to my question on Quincy's future. No word on which services will continue to be housed in Quincy or why users' Azure apps but not other services are going to be moved to the Southwest. But here's what the company is saying:

"Microsoft will continue to host many Microsoft online services out of our mega data center in Quincy, Washington.

"The delivery of online services is a fairly new business model. We are working with the Washington state legislature and the Governor to identify ways the state can offer competitive advantages over other states eager to attract this business, including areas such as tax regulations. Microsoft continues to be committed to our business in the state of Washington and the data center in Quincy."


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