Taxpayer Group Warns Governments on Excessive Data Center Tax Breaks Amid Backlash
A report from the National Taxpayers Union advises state and local governments to exercise caution when granting tax breaks to data center developers, citing concerns over water and electricity strain, public backlash, and temporary bans on new data centers in some states. The report uses Loudoun County, Virginia, as a prime example of significant data center tax revenue but warns against overzealous incentives, noting Microsoft's decision to decline tax breaks in St. Joseph County, Indiana.
The National Taxpayers Union (NTU) has issued two new studies cautioning state and local governments against offering overly generous tax breaks to data center developers. The report highlights that while data centers can deliver substantial local tax revenue, the aggressive competition for projects has led to incentives that raise concerns about strained water and electricity supplies, as well as public backlash. It notes that eleven states have already approved temporary bans on new data centers in response to these issues.
The NTU's study cites Loudoun County, Virginia, as an example, where data centers are projected to generate over $1.3 billion in personal property tax on equipment in 2026, accounting for a significant portion of the county's revenue. However, the report warns against excessive tax cuts, referencing instances such as Abilene, Texas, which approved an 86% property tax break, and Maysville, Ohio, which granted a 100% tax break for 15 years. The studies also indicate a shift in developer behavior, with Microsoft reportedly declining tax breaks in St. Joseph County, Indiana, as part of a broader pledge to not seek certain utility deals or local tax abatements.
Addressing environmental impacts, the report acknowledges data centers' potential strain on electric power grids, suggesting updates to the nation’s aging infrastructure. It also points out that some developers are exploring