PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Douglas Fairchild, Responsible Partner, Real Estate, Calderwood & Harkness LLP Priya Dasgupta, Chief Financial Officer, Ironhaven Data Centers LLC
FROM: Sylvia Hartwell, Specialist Partner, Tax, Calderwood & Harkness LLP
DATE: May 19, 2025
RE: Loudoun County Data Center Equipment Tax — Assessment Methodology and Projections; Stonebridge Data Center Campus
MATTER NO.: 1043-00002
CLASSIFICATION: Attorney-Client Privileged / Attorney Work Product
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I. Executive Summary
The purpose of this memorandum is to analyze the Loudoun County computer equipment and peripherals tax — commonly referred to as the "data center equipment tax" — as it applies to the Stonebridge Data Center Campus currently being developed by Ironhaven Data Centers LLC ("IHDC") in unincorporated Loudoun County, Virginia. This analysis is intended to inform IHDC's financial planning, leasing strategy, and ongoing compliance obligations with respect to this significant recurring tax burden, and to identify opportunities for tax minimization through proper asset classification, incentive negotiations, and structuring of tenant lease obligations.
The Stonebridge Campus will comprise four data center buildings (designated Buildings A through D), each designed to support 24 megawatts ("MW") of critical IT load, totaling 96 MW of aggregate critical IT capacity across approximately 480,000 square feet of gross floor area. The campus will be situated on an 81.4-acre site composed of the 62.0-acre Stonebridge Parcel and the 19.4-acre Meridian Parcel, located at the intersection of Belmont Ridge Road and Stonebridge Boulevard, Ashburn, Virginia 20148. The total project budget for the campus is approximately $600,000,000. Upon full build-out and stabilization, the campus will house substantial IT equipment — including servers, storage arrays, networking infrastructure, and supporting power and cooling systems — owned either by IHDC or by its tenants, all of which is potentially subject to the Loudoun County personal property tax on computer equipment and peripherals.
The current applicable tax rate for computer equipment and peripherals in Loudoun County is $1.25 per $100 of assessed value. At full deployment, the aggregate equipment tax burden across the campus could range from approximately $600,000 per year (for IHDC-owned infrastructure equipment only) to more than $3,600,000 per year (including tenant-owned IT equipment), depending on ownership structure, deployment levels, and the age-based depreciation factors applied by the Loudoun County Commissioner of Revenue.
This memorandum addresses the following topics:
(a) the legal basis for the tax under Virginia statute and Loudoun County ordinance;
(b) the assessment methodology employed by the Loudoun County Commissioner of Revenue, including valuation approaches and applicable depreciation schedules;
(c) projected annual tax burdens at various equipment deployment levels and ownership configurations;
(d) the critical distinction between owner-installed infrastructure equipment and tenant-installed IT equipment, and the allocation of tax obligations between IHDC and its tenants;
(e) potential abatement, exemption, and incentive opportunities available under Loudoun County economic development programs and Virginia statutory authority; and
(f) specific recommendations for tax planning, compliance, and coordination with the broader development and financing strategy for the Stonebridge Campus.
This memorandum has been prepared in coordination with Fielding & Associates, CPAs, under the direction of Robert Fielding, CPA, engagement partner, who will be responsible for the preparation and filing of the annual business tangible personal property tax returns and for maintaining the detailed equipment asset registers necessary for accurate reporting and potential assessment appeals. We recommend an early working session with Mr. Fielding to establish reporting protocols prior to the first assessment date.
This memorandum should be read in conjunction with our companion memoranda addressing the Virginia Data Center Sales and Use Tax Exemption under Virginia Code § 58.1-609.3(18), the recommended entity structure and tax elections for Stonebridge Campus Holdings LLC, and the scope and timing recommendation for the cost segregation study.
II. Legal Framework
A. Virginia Code Authority
The authority for local taxation of tangible personal property in Virginia derives from the Virginia Code, specifically Title 58.1, Chapter 35 (Tangible Personal Property). Virginia Code § 58.1-3501 et seq. establishes the framework for the classification and assessment of tangible personal property for local taxation purposes. Under this statutory scheme, the Virginia General Assembly authorizes counties, cities, and towns throughout the Commonwealth to levy a tangible personal property tax on business personal property, including — of particular relevance here — computer equipment and peripherals, at rates established by local ordinance.
Virginia Code § 58.1-3506 provides for the separate classification of certain categories of tangible personal property, enabling localities to establish differentiated tax rates for specified property types. Subsection (A) of § 58.1-3506 enumerates several classifications of tangible personal property that may be taxed at rates different from the general tangible personal property rate. Among these classifications, the General Assembly has specifically authorized localities to establish a separate (and typically preferential) tax rate for "computer equipment and peripherals" used in data center operations. This legislative recognition reflects the Commonwealth's longstanding policy of encouraging data center investment in Virginia, particularly in Northern Virginia, where the concentration of fiber-optic infrastructure and power capacity has made the region one of the world's largest data center markets.
It is important to underscore the fundamental distinction between real property taxation and tangible personal property taxation under Virginia law. Real property — encompassing land and permanently affixed improvements (i.e., buildings and structures) — is assessed and taxed under a separate statutory framework (Virginia Code § 58.1-3200 et seq.) at rates established independently by each locality. Tangible personal property — encompassing movable equipment, furniture, fixtures (to the extent not classified as real property), servers, networking gear, UPS systems, power distribution units, and similar items — is assessed and taxed under the tangible personal property framework at potentially different rates. The classification of a particular asset as real property versus personal property has significant tax implications, as discussed in detail in Section III.C below.
For the Stonebridge Campus, this distinction is critically important because a substantial portion of the installed equipment — including generators, central utility plant components, switchgear, and transformers — may be classified as either real property or personal property, depending on the facts and circumstances of installation and the intent of the parties. Proper classification at the time of installation can materially affect the aggregate tax burden.
B. Loudoun County Ordinance
Loudoun County has adopted local ordinance provisions governing the taxation of computer equipment and peripherals, codified in the Loudoun County Code, Chapter 868 (Taxation). These provisions implement the authority granted by the Virginia General Assembly under Virginia Code § 58.1-3506 and establish the specific tax rates, filing requirements, and assessment procedures applicable to data center equipment located within the County.
The Loudoun County Board of Supervisors sets the annual tax rate for computer equipment and peripherals as part of its annual budget and tax rate adoption process. The current rate is $1.25 per $100 of assessed value for "computer equipment and peripherals" used in data center operations. This rate applies specifically to the category of equipment typically found in data center facilities, including servers, storage devices, networking equipment, and related infrastructure components classified as personal property.
By way of historical context, Loudoun County has periodically adjusted this rate in response to market conditions, fiscal requirements, and competitive pressures from neighboring jurisdictions. The rate has remained at $1.25 per $100 for recent tax years, representing a balance between the County's interest in maintaining tax revenue from the substantial data center industry within its borders and its recognition that an excessively high equipment tax rate could discourage new investment or prompt existing operators to consider alternative jurisdictions. It is worth noting that this rate is substantially lower than the general tangible personal property tax rate applicable to other categories of business personal property in Loudoun County, reflecting the preferential classification authorized by § 58.1-3506.
For purposes of assessment and collection, the tax applies to all qualifying computer equipment and peripherals that are situated in Loudoun County as of January 1 of each tax year, which serves as the statutory assessment date. Equipment that is installed after January 1 of a given year will not be subject to taxation for that year but will be included in the following year's assessment. Conversely, equipment that is removed or disposed of before January 1 will not be included in the assessment for that year. This assessment-date rule has important implications for the timing of IHDC's equipment deployment and the phasing of equipment installations across Buildings A through D, as discussed further in Section IV below.
C. Taxable Property — What Is Covered
The scope of the Loudoun County data center equipment tax encompasses a broad range of equipment and infrastructure commonly found in data center operations. Under the applicable ordinance provisions and consistent with Virginia Code § 58.1-3506, the term "computer equipment and peripherals" includes, without limitation, the following categories of property:
• Servers — rack-mounted and blade servers, including chassis, processors, memory modules, and associated components;
• Networking equipment — routers, switches (both top-of-rack and core/aggregation switches), firewalls, load balancers, and network interface cards;
• Storage arrays — disk arrays, solid-state storage systems, tape libraries, and storage area network (SAN) components;
• Cabling infrastructure — structured cabling systems, fiber-optic patch panels, cable management systems, and related connectivity infrastructure (to the extent classified as personal property rather than a component of the building);
• Power distribution units ("PDUs") — both floor-mounted and rack-mounted PDUs, including intelligent PDUs with monitoring capabilities;
• Uninterruptible power supply ("UPS") systems — static UPS units, rotary UPS systems, batteries, and associated switchgear (to the extent classified as personal property);
• Cooling equipment — computer room air conditioning (CRAC) units, computer room air handling (CRAH) units, in-row cooling units, and rear-door heat exchangers (to the extent classified as personal property rather than building HVAC); and
• Related ancillary equipment — monitoring and management systems, environmental sensors, fire suppression systems specifically serving IT spaces, and similar equipment.
A critical threshold question for each category of equipment is whether the item is properly classified as personal property (subject to the $1.25/$100 equipment tax) or as real property (subject to the real property tax at a different rate and assessment methodology). This classification analysis is particularly significant for the following categories of equipment at the Stonebridge Campus:
Generators. Each building in the Stonebridge Campus is designed with a 2N diesel generator configuration, providing full redundancy for backup power. If these generators are permanently installed as part of the base building infrastructure — set on concrete pads, connected through permanent electrical conduit, and integrated into the building's emergency power distribution system — there are strong arguments that they should be classified as real property rather than taxable personal property. The analysis turns on whether the generators are "permanently affixed" to the real property and whether they were installed with the intent that they remain permanently as part of the building. Given the 2N configuration and the critical role these generators play in the building's base infrastructure (as opposed to tenant-specific equipment), we believe a strong case can be made for real property classification, provided the installation is properly documented and the generators are not designed for ready removal.
Mechanical and electrical infrastructure. Switchgear, transformers, main distribution panels, and other electrical infrastructure components that are permanently installed as part of the building's core electrical distribution system present similar classification questions. To the extent these items are permanently affixed, serve the building as a whole (rather than a specific tenant), and are integrated into the building's structural and electrical systems, they may be classified as real property. A detailed analysis of each component will be necessary, and we recommend that this analysis be performed in coordination with the cost segregation study to be commissioned upon construction commencement, as discussed in Section III.C below.
III. Assessment Methodology
A. Valuation Approach
The Loudoun County Commissioner of Revenue employs a standardized valuation methodology for the assessment of computer equipment and peripherals. Understanding this methodology is essential for accurate tax projection and for identifying potential areas of overassessment that may warrant appeal.
Original Capitalized Cost. The starting basis for personal property assessment is the original capitalized cost of the equipment. This is generally the total acquisition cost of the equipment as reflected in the taxpayer's books and records, including purchase price, delivery charges, and installation costs to the extent capitalized (but excluding costs that are properly allocated to real property improvements). The original cost figure serves as the "ceiling" from which the assessed value is derived through the application of depreciation factors.
Depreciation Schedule. The Commissioner of Revenue applies a published depreciation schedule that reduces the assessed value of equipment based on its age. The schedule is designed to approximate the decline in fair market value of computer equipment over its useful life, recognizing the rapid technological obsolescence characteristic of IT assets. The typical depreciation trajectory is as follows:
The assessed value for any given piece of equipment is therefore calculated as:
Assessed Value = Original Capitalized Cost × Applicable Depreciation Percentage for Equipment Age
The depreciation schedule typically includes a floor of approximately 10% to 20% of original cost, below which the assessed value will not decline regardless of the age of the equipment. This floor recognizes that equipment retains some residual value even at advanced ages and ensures that the County continues to collect some tax revenue on older equipment that remains in service. The precise depreciation factors and floor percentage may vary slightly from year to year as the Commissioner of Revenue updates the published schedule; the current schedule is attached as Appendix A to this memorandum.
Annual Reporting. Equipment is reported annually on the Loudoun County Business Tangible Personal Property Tax Return, filed with the Commissioner of Revenue. The return requires the taxpayer to report each category of equipment, along with the original cost and date placed in service. The filing deadline is typically May 1 of each tax year, with the assessment based on equipment in place as of January 1 of that year. Failure to file a timely return may result in the Commissioner of Revenue estimating the assessed value based on available information, potentially resulting in an assessment that is higher than the taxpayer would have reported.
The County retains the authority to audit reported values and may request documentation of original costs, including invoices, purchase orders, and capitalization records. Maintaining thorough and well-organized records is therefore essential both for initial filing and for defense against potential audit adjustments. We note that Loudoun County has been increasingly active in conducting audits of data center personal property tax returns in recent years, reflecting the growing significance of equipment tax revenue to the County's budget.
B. Equipment Owned by IHDC vs. Tenants
The allocation of equipment tax obligations between IHDC as the data center operator/landlord and its tenants is a critical structuring consideration that will significantly affect IHDC's direct tax exposure. The applicable rules depend on the ownership of the equipment and the nature of the occupancy arrangement.
IHDC-Owned Equipment — IHDC as Taxpayer. If IHDC operates the campus and owns the IT equipment deployed within the data halls, IHDC is the taxpayer responsible for reporting the equipment on its business tangible personal property tax return and paying the resulting tax directly to Loudoun County. Under this scenario, the full equipment tax burden falls on IHDC's operating budget.
Tenant-Owned Equipment — Tenant as Taxpayer. If IHDC leases data center space to tenants who procure, install, and own their own IT equipment (as is typical in wholesale colocation and powered shell arrangements), the tenant, as the owner of the tangible personal property, is generally responsible for filing its own business tangible personal property tax return and paying the tangible personal property tax directly to Loudoun County. Under this scenario, IHDC's direct equipment tax exposure is limited to the infrastructure equipment that IHDC itself owns — UPS systems, PDUs, generators (if classified as personal property), cooling equipment (if classified as personal property), and similar base building infrastructure.
Common Arrangement in Wholesale Data Center Models. The Stonebridge Campus is being designed and marketed primarily as a wholesale data center campus, where tenants are expected to install and own their own IT equipment within leased data hall space. Under this model, IHDC as landlord owns the base building, mechanical infrastructure, and electrical infrastructure, while the tenants own and operate the IT equipment deployed within the data halls. This division of ownership has significant tax implications:
(i) Tenants bear the equipment tax burden on their own IT equipment, which typically constitutes the vast majority of the taxable personal property within the facility by value;
(ii) IHDC's personal property tax obligation is limited to its own infrastructure equipment, which — depending on the real property vs. personal property classification analysis — may represent a significantly smaller tax base; and
(iii) The aggregate equipment tax burden across the campus is borne collectively by IHDC and its tenants, but each party's tax obligation is independent and based solely on the equipment that party owns.
Lease Provisions. Given the importance of this allocation, IHDC's lease agreements with tenants should contain clear and unambiguous provisions addressing equipment tax obligations. Specifically, each lease should:
• Clearly delineate the ownership of equipment installed by the tenant versus equipment provided by IHDC as part of the base building;
• Expressly allocate to the tenant the obligation to file business tangible personal property tax returns and pay all personal property taxes attributable to tenant-owned equipment;
• Require the tenant to provide copies of filed tax returns and proof of payment to IHDC on an annual basis, enabling IHDC to verify compliance and ensure that no tax liens or delinquencies arise that could affect the property;
• Include appropriate indemnification provisions requiring the tenant to indemnify IHDC against any tax liabilities, penalties, or interest arising from the tenant's failure to file or pay; and
• Address the treatment of equipment that the tenant may leave behind upon lease expiration or termination, including the tax obligations associated with abandoned equipment.
We recommend that IHDC coordinate with Douglas Fairchild and the real estate team at Calderwood & Harkness in drafting these lease provisions to ensure alignment between the equipment tax allocation and the broader lease structure, including provisions related to the Virginia data center sales and use tax exemption.
C. Distinction Between Personal Property and Real Property
The classification of equipment and infrastructure as either personal property or real property is one of the most consequential determinations affecting IHDC's equipment tax burden. Items classified as real property are assessed and taxed under the real property tax framework — at a different rate, under a different assessment methodology, and on a different assessment cycle — rather than the personal property equipment tax rate of $1.25 per $100 of assessed value. Depending on the relative real property and personal property tax rates, proper classification can result in meaningful tax savings.
Virginia Law on Fixtures. Under Virginia law, the determination of whether an item of equipment constitutes personal property or has become a fixture (and thus part of the real property) is governed by a multi-factor analysis that considers:
(i) Annexation — the degree to which the item is physically affixed to the real property. Items that are bolted to the floor, connected through permanent conduit, or otherwise physically integrated into the building structure are more likely to be classified as real property;
(ii) Adaptation — the degree to which the item is adapted to the use of the real property. Equipment that is specifically designed and configured for the particular building (as opposed to generic equipment that could be used in any facility) weighs in favor of real property classification; and
(iii) Intent — the intent of the party who installed the item. If the item was installed with the intention that it would remain permanently as part of the building, it is more likely to be classified as real property. Conversely, equipment installed with the understanding that it would be removed at the end of a lease term or replaced on a regular refresh cycle may be classified as personal property.
Application to Stonebridge Campus. For the Stonebridge Campus, several categories of infrastructure merit careful analysis under this framework:
2N Diesel Generator Configuration. Each building is designed with a fully redundant (2N) diesel generator system. These generators will be installed on engineered concrete pads, connected to the building's electrical distribution system through permanent switchgear and conduit, and integrated into the building's automated transfer switch (ATS) system. The generators are essential components of the base building infrastructure and are not associated with any particular tenant's operations. We believe there are strong arguments that these generators should be classified as real property, based on their permanent installation, their integration into the building's core electrical infrastructure, and the clear intent that they remain as permanent components of the facility. However, this classification is not automatic, and the Commissioner of Revenue may take a contrary position absent proper documentation.
Central Utility Plant Equipment. The chilled water plant, cooling towers, and associated pumping and piping systems that serve the campus are permanently installed components of the building's mechanical infrastructure. These items are strong candidates for real property classification.
Switchgear and Transformers. The medium-voltage switchgear, utility transformers, and main distribution switchboards are permanently installed electrical infrastructure components that serve the building as a whole. These items should also be classified as real property, consistent with standard practice for permanently installed electrical distribution equipment.
Coordination with Cost Segregation Study. IHDC should work with Fielding & Associates (Robert Fielding, CPA) and this firm to ensure proper classification of all equipment categories at the time of installation. We recommend that this analysis be performed in conjunction with the cost segregation study to be commissioned upon construction commencement. The cost segregation study is being undertaken primarily for federal income tax purposes — to reclassify components of the building from the 39-year nonresidential real property recovery period to shorter recovery periods (5-year, 7-year, and 15-year lives), thereby accelerating depreciation deductions. We estimate that the cost segregation study will reclassify approximately $45 million from the 39-year class to shorter-lived asset classes for federal depreciation purposes.
Critically, the cost segregation study will also generate a detailed component-by-component analysis of the building's construction costs that will directly inform the real property versus personal property classification for Virginia local tax purposes. While the federal cost segregation categories do not map precisely onto the Virginia real property/personal property distinction, the underlying factual analysis — identifying each component, assessing its degree of annexation and adaptation, and documenting the intent with respect to permanence — is substantially the same. By coordinating these two analyses, IHDC can achieve both federal tax benefits (through accelerated depreciation) and Virginia local tax benefits (through maximizing the amount of equipment classified as real property and thus removed from the personal property tax base).
IV. Projected Annual Tax Burden
A. Assumptions. The following projections are based on assumptions derived from IHDC's current development plan, the Stonebridge Campus operating pro forma, and our understanding of current market conditions for wholesale data center leasing in Northern Virginia. These projections are intended to provide a reasonable estimate of the annual equipment tax burden under various scenarios and should be refined as actual equipment costs and deployment schedules become more definite.
Total IT Equipment Deployment. At full build-out and stabilization, the Stonebridge Campus is expected to house a total of approximately $300,000,000 in IT and related equipment across all four buildings. This estimate is consistent with the equipment value assumptions used in the Virginia sales and use tax exemption analysis set forth in our companion memorandum (referencing approximately $300 million in qualifying equipment purchases over the initial deployment period). The $300 million figure includes both IHDC-owned equipment and tenant-owned equipment, with the expectation that the substantial majority of IT equipment (servers, storage, networking) will be owned by tenants in a wholesale colocation model.
IHDC-Owned Infrastructure Equipment. In addition to tenant-owned IT equipment, IHDC will own infrastructure equipment including UPS systems, PDUs, cooling equipment (to the extent classified as personal property), and potentially generators (if classified as personal property rather than real property). The estimated original cost of IHDC-owned infrastructure equipment that may be classified as personal property is $50 million to $75 million, depending on the outcome of the real property/personal property classification analysis. For projection purposes, we use a midpoint estimate of $60 million.
Phased Deployment Timeline. Equipment deployment will be phased in accordance with the construction and lease-up schedule for the four buildings:
• Building A: Substantial Completion targeted for August 1, 2027. Initial equipment deployment is expected to begin in Q3 2027, with the first tenants commencing IT installations shortly after building delivery.
• Buildings B through D: Substantial Completion targeted for November 1, 2027. Phased equipment deployment is expected through the stabilization target of Q2 2028, at which point the campus is projected to be 85% leased.
Because the Loudoun County assessment date is January 1 of each year, equipment deployed during 2027 will first be assessed on January 1, 2028. The January 1, 2028 assessment will capture only the equipment actually in place and operational as of that date — which, given the phased deployment schedule, is expected to represent a partial deployment rather than full build-out.
Depreciation Assumptions. For projection purposes, we apply the County's published depreciation schedule, using an estimated first-year depreciation factor of 80% of original cost. Subsequent years decline in accordance with the schedule outlined in Section III.A above.
B. Projection Table — Equipment Tax at $1.25 per $100 of Assessed Value
We present three scenarios to illustrate the range of potential equipment tax outcomes:
Scenario 1: IHDC-Owned Equipment Only (Infrastructure Equipment). This scenario isolates IHDC's direct equipment tax exposure, assuming that tenants own all IT equipment and are responsible for their own personal property tax obligations. Under this scenario, IHDC's personal property tax base consists solely of IHDC-owned infrastructure equipment classified as personal property.
Under Scenario 1, IHDC's initial annual equipment tax obligation would be approximately $600,000 in the first full assessment year, declining to approximately $225,000 by Year 5 as depreciation reduces the assessed value. Over a 10-year period, the cumulative tax under this scenario would be approximately $2.7 million, declining to the floor assessment level in later years.
This scenario represents the best case for IHDC's direct exposure and underscores the importance of structuring tenant leases to place the IT equipment tax obligation on tenants who own their own equipment.
Scenario 2: Full Campus Equipment (IHDC + Tenant-Owned, for Illustration). This scenario presents the aggregate equipment tax burden across the entire campus, combining IHDC-owned infrastructure equipment and tenant-owned IT equipment. While tenants would bear the tax on their own equipment directly, this scenario is useful for understanding the total tax impact on the campus and for evaluating the campus's competitive position relative to alternative data center markets.
Under Scenario 2, the aggregate first-year equipment tax across the campus would be approximately $3,600,000, declining to approximately $1,350,000 by Year 5. It is important to note that these figures assume a static equipment base with no new equipment additions. In practice, tenants routinely install new equipment on an ongoing basis as part of technology refresh cycles, which continuously introduces new equipment at higher assessed values and partially offsets the annual decline from depreciation of existing equipment. Accordingly, the actual aggregate tax burden in later years may be higher than the figures shown above.
If tenants own the IT equipment, tenants bear the IT equipment tax portion directly, and IHDC's exposure is limited to the infrastructure equipment amounts shown in Scenario 1. However, the total campus tax burden remains relevant to IHDC's business because it affects the all-in cost of occupancy for tenants and therefore influences leasing competitiveness and tenant retention.
Scenario 3: Phased Deployment. This scenario models the more realistic phased deployment of equipment over the 2027–2029 period, reflecting the staged construction completion and lease-up timeline.
Under Scenario 3, the first assessment year (January 1, 2028) would capture approximately $120 million in deployed equipment — reflecting the partial deployment that has occurred by year-end 2027 for Building A and the initial phases of Buildings B through D — resulting in an aggregate tax of approximately $1,200,000. By Year 2, as the campus approaches stabilization at 85% leased, the aggregate tax would increase to approximately $2,500,000 to $3,000,000, with the precise amount depending on the pace of tenant equipment installations and the blended depreciation factor across equipment of different ages.
The detailed year-by-year projection model covering Years 1 through 10 is attached as Appendix B.
C. Comparison to Other Virginia Jurisdictions
Loudoun County's equipment tax rate of $1.25 per $100 of assessed value is generally competitive with other Northern Virginia jurisdictions that have significant data center concentrations. A brief comparison provides useful context:
While the Northern Virginia jurisdictions generally maintain parity in their equipment tax rates — reflecting competitive dynamics in the region's data center market — individual localities may offer negotiated incentive agreements that effectively reduce the tax rate for qualifying projects. Loudoun County's rate is a contributing factor to, rather than a deterrent from, data center investment in the County, and the concentration of data center operators in Loudoun County is primarily driven by other factors including proximity to fiber interconnection points, reliable power supply from Ostrander Enterprises, a favorable regulatory environment, and the availability of large development parcels with appropriate zoning.
A more detailed comparison of data center equipment tax rates across selected Virginia jurisdictions is attached as Appendix C.
V. Potential Abatement, Exemption, and Incentive Opportunities
A. Loudoun County Economic Development Incentives
Loudoun County has historically offered voluntary incentive agreements to attract and retain large-scale data center investments that generate significant capital investment and employment within the County. These agreements are typically negotiated directly between the data center operator and the Loudoun County Department of Economic Development, subject to approval by the Board of Supervisors, and may include partial abatements of the equipment tax, reduced tax rates, or other fiscal incentives.
Given the scale of the Stonebridge Campus — with a total project budget of $600,000,000, a critical IT capacity of 96 MW, and significant anticipated employment (both construction-phase and permanent operational jobs) — IHDC should be well-positioned to explore a negotiated incentive agreement with the County. The Stonebridge Campus represents one of the larger data center developments currently in the pipeline in Loudoun County, and the County has a strong fiscal interest in encouraging projects of this magnitude.
Typical incentive structures that have been employed in comparable Loudoun County data center incentive agreements include:
• Partial equipment tax abatement — a reduction in the effective equipment tax rate for a defined period, typically 5 to 10 years, with the rate gradually stepping up to the full rate over the incentive period;
• Phased-in assessment — a gradual phase-in of the full assessed value of equipment over a multi-year period, effectively deferring a portion of the tax during the initial years of operation when the project is ramping up to stabilization;
• Job creation credits — credits or rebates tied to the creation of qualifying new full-time positions at specified compensation levels; and
• Capital investment thresholds — incentive eligibility conditioned on the achievement of minimum capital investment milestones, providing the County with assurance that the promised economic activity will materialize.
We recommend that IHDC initiate preliminary discussions with the Loudoun County Department of Economic Development at the earliest practicable opportunity, ideally in conjunction with the filing of the ZMOD application. Early engagement allows IHDC to signal the scale and significance of the project and to begin exploring the parameters of a potential incentive agreement before the project timeline becomes constrained.
B. Virginia Code § 58.1-3506 — Special Rate Authority
As noted in Section II.A above, the Virginia General Assembly has authorized localities to establish a separate (and lower) tax rate for "computer equipment and peripherals" specifically located in data centers. Loudoun County's current $1.25 per $100 rate is itself a preferential rate compared to the general tangible personal property tax rate. However, the statutory authority is permissive rather than mandatory — localities retain discretion to set the preferential rate at any level at or below the general tangible personal property rate. This means that additional reductions in the data center equipment tax rate could be enacted by the Board of Supervisors through ordinance amendment, either on a County-wide basis or potentially through a negotiated incentive agreement applicable to specific qualifying projects.
We are not aware of any pending legislative proposals at either the state or local level that would mandate a further reduction in the equipment tax rate. However, the competitive dynamics among Virginia jurisdictions — particularly the emergence of Central Virginia (Henrico County, Chesterfield County) and Hampton Roads as competing data center markets with lower tax rates — may create pressure for Northern Virginia localities to consider rate adjustments. We recommend that IHDC and this firm monitor legislative developments at both the General Assembly and the Board of Supervisors level, as discussed further in Section VIII below.
C. Enterprise Zone and Technology Zone Programs
Virginia maintains a system of designated Enterprise Zones under the Virginia Enterprise Zone Act (Virginia Code § 59.1-538 et seq.), which provide state and local tax incentives to businesses located within qualifying zones. In addition, Loudoun County has established Technology Zone designations in certain areas of the County, offering local tax incentives to qualifying technology-based businesses.
IHDC should evaluate whether the Stonebridge Campus location at the intersection of Belmont Ridge Road and Stonebridge Boulevard falls within or adjacent to any designated Virginia Enterprise Zone or Loudoun County Technology Zone. If the campus is located within a designated zone, IHDC and its tenants may be eligible for additional local tax incentives, including:
• Reduced personal property tax rates on qualifying business equipment;
• Real property tax abatements or exemptions for new construction; and
• State-level incentives including Job Creation Grants and Real Property Investment Grants.
Based on our preliminary review, the Stonebridge Campus location is within the Ashburn area of unincorporated Loudoun County, which has historically included portions of the County's Technology Zone designation. However, the boundaries of these zones are periodically revised, and confirmation of current zone boundaries should be obtained from the Loudoun County Department of Economic Development as part of the incentive exploration process.
D. Coordination with Virginia Data Center Sales Tax Exemption
As analyzed in our companion memorandum, IHDC anticipates qualifying for the Virginia data center sales and use tax exemption under Virginia Code § 58.1-609.3(18). That exemption requires a minimum capital investment of $150 million over five years and the creation of a minimum of 50 new jobs, and is projected to yield estimated tax savings of approximately $15,900,000 on approximately $300 million in qualifying equipment purchases at a combined state and local sales tax rate of 5.3%.
It is critically important to understand that the sales tax exemption and the local equipment tax are independent programs. Qualification for the sales tax exemption does not eliminate or reduce the local equipment tax obligation, and vice versa. The sales tax exemption applies to the purchase of equipment (a one-time event at the point of acquisition), while the equipment tax applies to the ongoing ownership and use of equipment situated in Loudoun County (an annual obligation based on assessed value). Both programs benefit IHDC and its tenants, but they operate in parallel and must be pursued and maintained separately.
That said, both programs reward substantial capital investment, and the application processes involve overlapping documentation — including capital investment plans, job creation commitments, and equipment inventories. We recommend coordinating the documentation and filing processes for both programs to minimize administrative burden and ensure consistency in the information presented to the Commonwealth and the County.
E. Proffer Offset Considerations
The ZMOD application for the Stonebridge Campus (expected docket number ZMOD-2025-0038, with a filing target of May 30, 2025) includes estimated proffers of approximately $2,400,000, calculated at $5.00 per square foot of gross floor area across the 480,000-square-foot campus. These proffers represent one-time cash contributions to Loudoun County, typically allocated to specified capital improvement categories (transportation, schools, fire and rescue, and parks and recreation) as conditions of the zoning approval.
While proffers are distinct from annual equipment taxes — proffers are one-time payments made at the time of building permit issuance, whereas equipment taxes are recurring annual obligations — the two revenue streams are related in the context of the fiscal impact analysis that will be submitted as part of the ZMOD application. The fiscal impact analysis is designed to demonstrate that the Stonebridge Campus will be a net fiscal positive for Loudoun County, generating more tax revenue (from real property taxes, equipment taxes, and other sources) than it will consume in County services. The annual equipment tax revenue generated by the campus — projected at $1.2 million to $3.6 million per year depending on deployment levels — represents a significant and recurring fiscal benefit to the County that should be prominently highlighted in the fiscal impact narrative.
We recommend coordination with Ashcroft & Wynn, P.C. (Thomas Ashcroft, land use counsel) and Cornerstone Land Use Consulting, LLC (Alan Mercer, land use planning consultant) to incorporate the equipment tax revenue projections into the ZMOD fiscal impact analysis. A strong fiscal impact showing may also support favorable treatment in proffer negotiations with the Board of Supervisors, particularly at the public hearing currently anticipated for October 2025. To the extent that the annual equipment tax revenue can be shown to significantly exceed the cost of County services attributable to the campus, IHDC may be positioned to argue for moderate proffer levels — an argument that is strengthened by the sheer magnitude of the ongoing equipment tax contribution relative to the one-time proffer amount.
VI. Impact on Project Economics and Budgeting
The annual equipment tax expense represents a meaningful component of the Stonebridge Campus's ongoing operating cost structure and must be properly modeled in IHDC's pro forma operating budget. The key considerations are as follows:
Direct Impact to IHDC. If the wholesale colocation model is implemented as planned — with tenants owning and bearing the tax on their own IT equipment — IHDC's direct equipment tax exposure is limited to its own infrastructure equipment classified as personal property. Based on the Scenario 1 projections presented in Section IV.B above, this direct exposure is estimated at approximately $500,000 to $750,000 per year initially (depending on the outcome of the real property classification analysis), declining over time as the equipment depreciates. This amount should be incorporated as a line item in the campus operating budget.
Indirect Impact Through Market Competitiveness. Although tenants bear the tax on their own equipment directly, the total equipment tax burden (including tenant-borne costs) is a factor that affects the campus's market competitiveness. Hyperscale and enterprise tenants evaluating data center locations consider the all-in cost of occupancy, which includes not only lease rates and power costs but also the local tax burden on equipment. A high equipment tax rate — or the absence of incentives available in competing jurisdictions — can influence tenant leasing decisions and may affect IHDC's ability to achieve the targeted lease rates and stabilization timeline. While Loudoun County's rate is competitive with other Northern Virginia jurisdictions, IHDC should be aware that jurisdictions in Central Virginia and other regions may offer lower equipment tax rates or more aggressive incentive packages, and these alternatives may be cited by tenants in lease negotiations.
Construction Loan Compliance. The equipment tax projections must be integrated into the financial models and compliance reporting required under the Construction Loan Agreement with Summit National Bank, N.A. (as Administrative Agent), Cascade Commercial Lending Corp., and Harborview Trust Company. The $390,000,000 construction facility (Reference CL-2025-VA-04418) contains covenants requiring IHDC to comply with approved operating budgets and may require lender consent for material changes in projected operating expenses. The equipment tax represents a known and quantifiable operating expense that should be reflected in the initial operating budget submitted to the lender and in subsequent budget updates.
DSCR Testing at Stabilization. The Construction Loan Agreement establishes a minimum debt service coverage ratio ("DSCR") of 1.25x at stabilization, which is targeted for Q2 2028 at 85% leased. The equipment tax expense — whether borne by IHDC directly or reflected in the campus's operating expense structure — will be included in the operating expense component of the DSCR calculation. The tax projections presented in this memorandum should be integrated into the stabilization pro forma provided to the lender group at the DSCR testing date to ensure that the minimum coverage ratio is met after accounting for all projected operating expenses, including the equipment tax.
Operating Expense Recovery. To the extent that IHDC incurs equipment tax expenses on its own infrastructure, IHDC should evaluate whether a portion of these costs can be recovered from tenants through operating expense pass-through provisions in the leases. Standard data center lease structures often include pass-through of certain operating expenses (including property taxes) to tenants as part of the base rent or as additional rent. The treatment of personal property taxes on landlord-owned infrastructure equipment should be addressed explicitly in the lease form.
VII. Compliance and Reporting Obligations
IHDC's compliance and reporting obligations with respect to the Loudoun County equipment tax are summarized below. Timely and accurate compliance is essential to avoid penalties, interest, and adverse assessment adjustments, and to preserve IHDC's right to appeal assessments that exceed fair market value.
Annual Tax Return Filing. IHDC must file the Loudoun County Business Tangible Personal Property Tax Return with the Commissioner of Revenue on an annual basis. The return requires a detailed reporting of all tangible personal property owned by IHDC that is situated in Loudoun County as of the January 1 assessment date, including the original cost, date placed in service, and property classification for each item or category of equipment. The filing deadline is typically May 1 of each tax year. Late filings may result in the Commissioner estimating assessed values based on available information, which could result in assessments that exceed the amounts IHDC would have self-reported.
Asset Register Maintenance. IHDC must maintain detailed asset registers that identify each item of equipment by category, original cost, date placed in service, and classification (personal property versus real property). These registers serve as the primary source documentation for the annual tax return and are essential for defending the reported values in the event of a County audit. The asset registers should be maintained in coordination with IHDC's general ledger and fixed asset accounting records, and should be reconciled on at least an annual basis.
Tenant Compliance Monitoring. IHDC's lease agreements should obligate tenants who own IT equipment to file their own business tangible personal property tax returns with the Loudoun County Commissioner of Revenue and to provide copies of filed returns and proof of tax payment to IHDC on an annual basis. This monitoring function is important for several reasons:
(i) Ensuring that tenants are fulfilling their independent tax obligations, thereby preventing the accumulation of tax delinquencies that could complicate the property's fiscal profile;
(ii) Verifying that tenants are not incorrectly reporting IHDC-owned equipment on their returns, or failing to report tenant-owned equipment, either of which could create inconsistencies that attract audit scrutiny; and
(iii) Maintaining a comprehensive record of the total equipment tax burden across the campus, which may be relevant for fiscal impact analyses, incentive discussions, and investor reporting.
Engagement of Fielding & Associates. Fielding & Associates, CPAs, under the direction of Robert Fielding, CPA, should be engaged to assist with the initial filing of the business tangible personal property tax return, the establishment of equipment tracking protocols, the asset classification analysis (in coordination with the cost segregation study), and the annual review of depreciation schedules applied by the Commissioner of Revenue. Mr. Fielding's firm has extensive experience with data center personal property tax compliance in Loudoun County and is well-positioned to ensure accurate and defensible filings.
Annual Reconciliation and Assessment Review. We recommend that IHDC conduct an annual reconciliation of the Commissioner's assessment notices against IHDC's own records to identify any discrepancies or potential overassessments. Common sources of overassessment include:
• Application of incorrect depreciation factors (e.g., using a higher-than-published factor for the equipment's age);
• Inclusion of equipment that has been disposed of, transferred, or removed from the County prior to the January 1 assessment date;
• Misclassification of real property items as personal property, resulting in double taxation (under both the real property and personal property tax regimes); and
• Errors in the reported original cost basis, such as inclusion of costs that were properly allocated to real property improvements.
Right to Appeal. If IHDC identifies an overassessment or disagrees with the Commissioner's valuation, IHDC has the right to appeal the assessment to the Loudoun County Board of Equalization. The Board of Equalization is an independent body that hears taxpayer appeals and has the authority to adjust assessments. Appeals must be filed within the prescribed deadline (typically within a specified number of days after the assessment notice is issued). We recommend that IHDC establish a standing process for reviewing assessment notices promptly upon receipt and evaluating potential appeal opportunities each year.
VIII. Recommendations
Based on the analysis set forth in this memorandum, we offer the following recommendations for IHDC's consideration:
1. Engage Fielding & Associates Early. Robert Fielding, CPA, and his team should be engaged promptly to establish equipment tracking protocols, design the asset register system, and coordinate with IHDC's accounting staff on the personal property tax filing process. The first assessment date will be January 1, 2028, for equipment deployed during calendar year 2027. Because Building A is targeted for Substantial Completion on August 1, 2027, equipment installations are expected to begin in Q3 2027, leaving a relatively short window to implement compliant tracking systems before the first assessment date. Early engagement will ensure that the reporting infrastructure is in place well before the filing deadline.
2. Maximize Real Property Classification. IHDC should take affirmative steps to maximize the amount of infrastructure equipment classified as real property rather than personal property. This includes, in particular, the permanently installed 2N diesel generators, central utility plant equipment, switchgear, and transformers. Classification should be documented at the time of installation through proper engineering and legal analysis, and should be coordinated with the cost segregation study that will be commissioned upon construction commencement. Every dollar of equipment reclassified from personal property to real property removes that amount from the $1.25/$100 equipment tax base and may result in meaningful cumulative savings over the life of the equipment.
3. Negotiate Lease Provisions Carefully. IHDC's lease agreements with tenants should contain clear, unambiguous provisions that (a) delineate ownership of equipment between IHDC and the tenant, (b) allocate the tangible personal property tax obligation to the tenant for all tenant-owned equipment, (c) require tenants to file directly with Loudoun County and provide copies of filings to IHDC, and (d) include appropriate indemnification provisions. These provisions should be drafted in coordination with the real estate team at Calderwood & Harkness and reviewed for consistency with the broader lease structure.
4. Explore Incentive Discussions with Loudoun County. IHDC should initiate preliminary discussions with the Loudoun County Department of Economic Development regarding a potential equipment tax abatement or reduced rate agreement for the Stonebridge Campus. The campus's $600 million total project budget, 96 MW critical IT capacity, and anticipated job creation position IHDC as a strong candidate for a negotiated incentive. Early engagement — ideally before or concurrent with the ZMOD filing — is advisable to demonstrate good faith and allow adequate time for negotiations.
5. Integrate Equipment Tax Projections into the Project Pro Forma. The equipment tax projections presented in this memorandum should be incorporated into IHDC's operating pro forma for the Stonebridge Campus, including the stabilization pro forma to be provided to the lender group under the Construction Loan Agreement. The projections should be reflected as a known operating expense for DSCR testing purposes, and the pro forma should distinguish between IHDC-borne equipment tax (on IHDC-owned infrastructure) and tenant-borne equipment tax (on tenant-owned IT equipment).
6. Coordinate with ZMOD Fiscal Impact Analysis. IHDC should work with Ashcroft & Wynn, P.C. (Thomas Ashcroft) and Cornerstone Land Use Consulting, LLC (Alan Mercer) to incorporate the equipment tax revenue projections into the fiscal impact analysis accompanying the ZMOD application (expected docket ZMOD-2025-0038). The annual equipment tax revenue generated by the campus — projected at $1.2 million to $3.6 million per year — represents a significant fiscal benefit to Loudoun County and should be highlighted in the fiscal impact narrative presented to the Board of Supervisors at the anticipated October 2025 public hearing. A strong fiscal impact showing supports the zoning application and may also support moderate proffer levels.
7. Monitor Legislative Developments. The Virginia General Assembly and the Loudoun County Board of Supervisors periodically consider adjustments to data center equipment tax rates and related incentive programs. Any change in the applicable tax rate — whether an increase or a decrease — could materially affect IHDC's projected tax burden and the campus's competitive positioning. We recommend that IHDC and this firm actively monitor legislative and regulatory developments at both the state and local level, including proposed legislation, Board of Supervisors work sessions on tax policy, and industry association advocacy efforts related to data center taxation.
8. Establish an Annual Assessment Appeal Process. IHDC should implement a standing process for the annual review of assessment notices issued by the Commissioner of Revenue. Upon receipt of each year's assessment notice, IHDC (in coordination with Fielding & Associates) should compare the Commissioner's assessed values against IHDC's own records, verify that the correct depreciation factors have been applied, confirm that disposed or reclassified equipment has been removed from the assessment, and evaluate whether an appeal to the Board of Equalization is warranted. The cost of maintaining this review process is modest relative to the potential savings from correcting overassessments.
IX. Conclusion
The Loudoun County equipment tax at $1.25 per $100 of assessed value will represent a meaningful and recurring operating cost for the Stonebridge Data Center Campus. At full deployment, the aggregate annual tax burden across the campus could range from approximately $600,000 (for IHDC-owned infrastructure equipment only) to $3.6 million (including tenant-owned IT equipment at initial deployment values), declining over time as the depreciation schedule reduces assessed values — but refreshed periodically as tenants install new equipment.
IHDC's direct exposure to the equipment tax can be substantially mitigated through a combination of three strategies. First, structuring tenant leases to ensure that tenants own and are directly responsible for the tax on their own IT equipment limits IHDC's annual obligation to its own infrastructure equipment. Second, proactive classification of permanently affixed infrastructure — including generators, central utility plant components, switchgear, and transformers — as real property rather than personal property reduces the personal property tax base. Third, pursuit of a negotiated incentive agreement with Loudoun County may yield a partial abatement or reduced rate for a defined period, further reducing the effective tax burden during the critical initial years of campus operations.
This memorandum should be read in conjunction with the following companion memoranda prepared by this firm in connection with the Stonebridge Campus development:
• Memorandum re: Virginia Data Center Sales and Use Tax Exemption under Virginia Code § 58.1-609.3(18) — analyzing IHDC's eligibility for the exemption, the minimum capital investment and job creation requirements, and the estimated tax savings of approximately $15.9 million on qualifying equipment purchases;
• Memorandum re: Recommended Entity Structure and Tax Elections for Stonebridge Campus Holdings LLC — analyzing the optimal holding and operating entity structure for the campus from a federal and state tax perspective; and
• Memorandum re: Cost Segregation Study — Scope and Timing Recommendation — analyzing the scope of the proposed cost segregation study, estimated reclassification of approximately $45 million to shorter-lived asset classes, and coordination with the Virginia real property/personal property classification analysis.
We are available to discuss this memorandum at