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Microsoft may be doing a forklift move of its new 470,000-square-foot data center in Quincy, Wash., after state regulators declared the facility is not qualified for tax exemptions intended for manufacturing facilities.

Data Center Knowledge reports that Microsoft is threatening to move the facility designated to host the Azure cloud-based operating system and application services to a facility in San Antonio, Texas, where it will enjoy lower cost electricity and taxes.

The reported data center exodus is the latest move in a nearly two-year battle between Microsoft and its home state. In December 2007, Washington regulators determined that a data center is not a manufacturing facility in the same sense as a factory since it does not produce goods that are sold to other customers. The ruling made the data center and its services subject to a 7.9 percent services tax. Washington lawmakers reportedly tried passing legislation to correct the tax definitions, but it stalled as critics called it a tax break for rich high-tech companies.

The Pacific Northwest has become a haven for new data center projects. Companies including Google, Yahoo, and others have sited facilities in Washington and Oregon to take advantage of the cheap power and cooling costs, abundant labor market and lower operating costs. The demand for data center capacity is steadily increasing as more companies and applications migrate to cloud computing offerings.

Two things interesting about this dispute: the impact of tax codes on cloud computing infrastructures and what role solution providers and resellers could play in earning the manufacturing status.

If the Washington state tax ruling stands, it could prompt other cash-strapped states (yes, I mean you California) to issue similar standards to capture more dollars for the public coffers. This could create a period of competition between states for data center business. Of course, this could also create new tax headaches for solution and managed service providers trying to enter the cloud computing market.

But what’s really interesting is Washington’s notion that a data center isn’t a manufacturing facility because it doesn’t create goods that are resold to an ultimate customer. Why hasn’t Microsoft played the channel card in this battle? Microsoft’s entire “software+services” strategy is to provide cloud-based applications that consumers can buy both direct and indirect, but the presumption is that most of these services will flow through partners. The Software+Services go-to-market plan seems to fit the Washington state tax code for manufacturing tax breaks.

Microsoft partners have complained that Software+Services doesn’t provide big enough margins for them to make money. Microsoft doesn’t shy away from the fact that its services sold through partners have razor thin margins; the company leaves it up to partners to deliver their own “value-added” options and services to the equation. While savvy Microsoft partners are making money off cloud-based services, many more say the thin margins and the cloud delivery makes it too easy for Microsoft to sell direct. Perhaps it’s that reason Microsoft isn’t playing the channel card.

Either way, the Microsoft-Washington tax dispute is definitely a story worth following by solution providers for its wide range of issues that could change the way cloud services are located, sold and supported.

Ironically, Microsoft could be moving some of its facilities out of Washignton state in a tax dispute since it was a more favorable tax and economic climate that lured the software company from New Mexico in 1979.