General Assembly overcomes data center impasse to advance state budget
The Virginia General Assembly passed a state budget that includes a new electrical consumption tax for data centers, expected to generate $1.2 billion over two years. The budget also mandates new water and noise standards for data centers, to be administered by the Virginia Dept. of Environmental Quality, while retaining existing sales tax exemptions until 2035.
The Virginia General Assembly reached a compromise to pass the state budget, which includes significant tax and environmental provisions for data centers. After overcoming an impasse, legislators approved a budget that imposes a new electrical consumption tax on data centers, projected to generate $1.2 billion over the biennium. This tax, calculated at $0.011 per kilowatt-hour, will fund the state's general fund, with provisions for refunds to data center operators if collections exceed the allocated amount after July 1, 2027.
Despite calls from some Democrats, including Senate President Pro Tempore Louise Lucas and Senator Danica Roem, to repeal existing sales tax exemptions for data centers, these exemptions will remain in place until 2035. Governor Abigail Spanberger had previously indicated her reluctance to break these "contracts" due to potential litigation. The budget does, however, direct the Joint Commission on Tax Policy to review these exemptions and other data center impacts by late 2026.
Additionally, the new legislation introduces water and noise standards for data centers, to be developed and enforced by the Virginia Department of Environmental Quality (DEQ). Data centers in "cooling water scarcity areas" will need to adopt more efficient cooling systems by July 1, 2032. DEQ is also required to establish regulations for "lowest achievable noise" by December 31, 2029, with violations subject to civil penalties up to $32,000 per day starting January 1, 2030. These measures reflect growing concerns among legislators like Senator Barbara Favola regarding the public impacts of data centers, including their water and electricity usage and infrastructure demands, despite the state's goal to be a data center hub championed by former Governor Glenn Youngkin.