Virginia's data center tax break is costing the state more than $1 billion a year — and lawmakers are fighting over what to do about it

A recent report by the nonprofit watchdog Good Jobs First estimates that Virginia's sales and use tax exemption for data centers will cost the state over $1 billion in foregone revenue in fiscal year 2024, rising to nearly $1.94 billion in fiscal year 2025. Executive Director Greg LeRoy highlighted that K-12 public education is a major loser, with an estimated $267 million in lost revenue statewide, including $38 million for Fairfax County Public Schools, $19 million for Prince William County, and $17 million for Loudoun County. Senator Russet Perry (D-Loudoun County) noted the exemption, enacted in 2008 when data centers were far less costly, has "ballooned exponentially" due to the explosion of AI and massive new facilities. The Data Center Coalition, represented by President Josh Levi, strongly disputed these findings, citing a Virginia Department of Taxation analysis that suggests the exemption generates an 11 percent annual return, supports 74,000 jobs, and has brought over $80 billion in investment. Levi warned that repealing the exemption could deter future investment, referencing Compass's recent withdrawal from a Northern Virginia project. He also stated the industry offered compromise proposals, including $1.1 billion in new state revenue, which were rejected. As a July 1 budget deadline approaches, the Virginia General Assembly faces a fiscal emergency. The Senate, led by Finance Committee Chair Louise Lucas, proposes eliminating the exemption to reclaim an estimated $1.6 billion annually for transportation, education, and local services. The House aims to preserve the exemption but add strict environmental standards, requiring renewable energy and low-emission generators. Senator Barbara Favola (D-Arlington) offers a third solution: usage-based fees tied to data centers' electricity and water consumption, citing state auditor findings that unchecked growth could increase utility bills. While Loudoun County Public Schools CFO Sharon Willoughby acknowledged millions in local property taxes and direct contributions from data centers, the broader state debate continues without a deal. WUSA9 contacted Amazon Web Services and Digital Realty Trust, who have not yet responded.