NC budget bill ends one incentive for data centers, keeps other tax breaks
North Carolina's proposed budget bill aims to eliminate a 20-year-old sales tax exemption on electricity for data center operators, potentially saving the state $21.4 million in the coming fiscal year. Other tax incentives, such as sales tax exemptions for cooling systems and exterior substations, will remain in effect. The move comes amid increasing concerns about data centers' energy and water consumption and local opposition to new projects.
North Carolina's Republican state Senate and House leaders have released a budget bill that proposes to end a sales tax exemption on electricity for data center operators. This 20-year-old tax break is estimated to save the state $21.4 million in the upcoming fiscal year, which begins on Wednesday.
Despite this change, data center operators will retain other sales tax incentives, including exemptions on purchases of eligible business property like on-site cooling systems, exterior substations, and computer research. To qualify for these incentives, companies must invest at least $75 million, meet county wage standards, and provide healthcare for full-time employees. The North Carolina Department of Revenue is tasked with auditing companies to verify their eligibility.
The state's data center incentives were initially established in 2006, partly at the urging of Google, leading to a "data center corridor" west of Charlotte with facilities from Google, Meta, and Apple. More recently, Amazon announced a $10 billion data center campus in rural Richmond County. The proposed tax break repeal is prompted by the explosive growth of data centers, particularly those driven by AI, which consume immense amounts of energy and water.
Governor Josh Stein, a Democrat, expressed in April that the world has changed significantly since the tax break was enacted, and the current energy consumption of data centers was unforeseen. His office had previously explored options to repeal or modify these tax breaks. Governor Stein stated he would review the budget bill closely; while Republicans have enough votes for an override in the Senate if he vetoes it, they would need additional support in the House.