Legislation could sweeten tax incentives for certain quantum computing, defense-related projects

As state leaders seek to infuse more emerging-technology-related investments into Indiana’s economy, a Senate committee greenlit the expansion of a tax break that could sweeten the incentive package offered to prospective companies.

Rep. Ed Soliday, R-Valparaiso, authored House Bill 1601, which would expand the types of projects allowed under an existing state sales tax exemption meant to incentivize companies to build data centers in the state.

If passed, the expanded tax break would cover projects related to quantum computing research, advanced computing and defense infrastructure with investments of over $50 million within five years.

“The reason we’re offering incentives is so that we can have a seat at the table and attract these other entities,” Soliday said Tuesday.

The bill’s fiscal analysis does not provide an estimate of how much sales tax could be circumvented. The Indiana Economic Development Corp. would need to first approve a business’s project and determine its eligibility before a company could receive exemptions.

After passing the House 76-18 in February, the bill cleared the Senate Tax and Fiscal Policy Committee 9-3 Tuesday morning. It now moves to the Senate floor for consideration.

The bill does not cap how much or how often the exemption could be used, which drew criticism and dissenting votes from Democrats. Data center construction has been met with some apprehension for a number of reasons, including primarily the low number of jobs produced for the large tax incentives and utility burden these developments require.

With the passage of the CHIPS and Science Act, the federal government signaled it would prioritize microchip making and advanced computing research to insulate the country from national security risks. Leaders in Indiana saw an opportunity.

Under former Gov. Eric Holcomb, the state sought to capitalize on newly available federal funds and build Indiana’s presence in key defense-intertwined sectors, particularly as it relates to microelectronics, biotechnology and artificial intelligence.

Under the Holcomb administration, Indiana became the only state with a hand in three federal innovation hubs. These hubs—alliances that facilitate opportunities to collaborate, land funding for projects or research topics, and develop momentum around government-supported economic development—received upwards of $1 billion in federal funding to support their work.

Still, Indiana is catching up to other states where companies in these target industries were already established.

“This bill positions Indiana as a hub for quantum infrastructure, a sector that will define competitiveness for the state and the nation going forward,” said David Ober, senior vice president of business operations and finance at the Indiana Chamber of Commerce.

Tom Dakich, CEO of the Hammond-based Quantum Corridor Inc., told attendees at a March 10 IBJ Technology Power Breakfast that he worked with Soliday to craft the bill. Quantum Corridor is a public-private partnership developing a high-speed fiber optic communications network.

The tax breaks, if approved, could benefit the partnership, which seeks to connect academic research and the private sector, from Chicago to Crane, Indiana, to advance the sophistication of research and private sector offerings.

Dakich said in March that the exemption is garnering interest from outside the state and would be a powerful tool in building up the corridor.

“What this basically says is we’re going to be the first state to create tax credits for bringing your quantum networking, your quantum investment, into the into the state of Indiana,” he said.