Why Property Tax Appeals for Data Centers Are Becoming One of the Hardest Battles in Commercial Real Estate

By Eric Owens, Director at Swartz and Associates

Data centers have become the backbone of the modern economy — powering AI, cloud computing, autonomous vehicles, and global digital infrastructure. But with that growth has come a new reality: data centers are now among the most aggressively assessed and most frequently overvalued property types in the U.S.

For owners, operators, and investors, this creates a perfect storm: high capital intensity, rapid technological obsolescence, and assessors who often misunderstand what actually drives value.

Here’s why property tax appeals for data centers are uniquely challenging — and why specialized valuation strategy is no longer optional.

1. Assessors Rely on Models That Don’t Fit Data Centers

Most jurisdictions still lean heavily on the cost approach, equating construction cost with market value. But data centers are not warehouses with servers — they are complex ecosystems of short‑life electrical, cooling, and mechanical systems. When assessors fail to separate rapidly depreciating infrastructure from the real estate, values are overstated from day one.

Compounding the issue, many states lack depreciation schedules tailored to data center equipment, leaving assessors to apply industrial‑building assumptions that simply don’t apply.

2. Rapid Technological Obsolescence Drives Accelerated Depreciation

AI‑driven server clusters generate far more heat and require dramatically different cooling and electrical configurations than prior generations. As a result, data centers depreciate 5–10% annually, compared to 2% for typical industrial buildings.

This means a facility can be technologically outdated long before it is physically worn — yet assessments often assume a 40–50 year economic life.

3. Over‑Assessment Is Structural, Not Cyclical

Unlike office or retail, data center over‑assessment doesn’t track market cycles. It stems from how assessments are timed and how infrastructure is treated. Data centers are built in phases.

On the assessment date:

• Only certain floors may be revenue‑enabled
• Only some power/cooling systems are energized
• Large portions of capacity remain intentionally unfinished

Yet assessments frequently treat all shell space and deferred infrastructure as fully contributory, overstating value.

This mismatch between installed vs. revenue‑producing capacity is one of the biggest drivers of appeal‑ready errors.

4. Sales Comparison Is Nearly Impossible to Apply Correctly

True arm’s‑length data center sales are rare — and when they occur, they reflect:

• Business value
• Personal property
• Intangible assets
• Enterprise‑level economics

Assessors often misinterpret these transactions as pure real estate indicators, leading to massive overstatements of taxable value.

Without proper allocation, the real estate ends up absorbing value that belongs to equipment or business operations.

5. Land Is Frequently Over‑Valued Due to Misunderstood Site Requirements

Data centers require:

• Reliable power
• Access to water
• Fiber connectivity

These factors increase land value to a data center developer, but not to the broader market. Some assessors mistakenly inflate land assessments based on these specialized needs — a clear inequity compared to other parcels in the same district.

6. Political Dynamics Make Data Centers Easy Targets

Because data centers are often owned by large, non‑local corporations, they face less political resistance than residential or locally owned commercial properties. Assessors know this — and many jurisdictions are leaning harder on data centers to fill revenue gaps.

This means owners must be proactive, not reactive, in defending their assessments.

What This Means for Owners and Operators

The complexity of data center valuation means that traditional appeal strategies fall short. Winning appeals requires:

• Separating real property from personal property and business value
• Quantifying accelerated depreciation and functional obsolescence
• Correcting misapplied cost models
• Challenging improper land valuation
• Demonstrating what is actually installed and revenue‑producing as of the lien date

Firms that treat data centers like industrial buildings will lose. Firms that understand the economics, phasing, and technology cycles will win.

The Bottom Line

Data centers are the most misunderstood — and most frequently over‑assessed — asset class in commercial real estate today.

For owners, the stakes are enormous: millions in annual tax liability hinge on getting the valuation right.

As data centers continue to scale to meet AI‑driven demand, property tax strategy must scale with them. The jurisdictions aren’t slowing down — and neither should your appeal strategy.

Swartz + Associates, Inc. (SAI) is a full service property tax firm specializing in the review, analysis and appeals of real and business personal property tax valuations. If you need help with your property taxes, give us a call!