Virginia Budget Keeps Data Center Tax Breaks, Adds $600M Energy Levy
Virginia lawmakers passed a state budget that maintains sales and use tax exemptions for data centers but introduces a new levy on energy consumption, projected to generate up to $600M annually. The budget also mandates the Virginia DEQ to conduct environmental impact studies on groundwater use and establish statewide noise abatement regulations for data centers. This compromise was reached after significant debate between legislative chambers.
Virginia's General Assembly passed a $250 billion state budget, resolving an impasse over data center policies that nearly led to a government shutdown. The compromise legislation maintains the state's significant sales and use tax exemption for data centers, a policy often credited with making Virginia a global hub for the industry. However, it introduces a new tax on data center energy consumption, charging just over 1 cent per kilowatt-hour, estimated to generate up to $600 million annually, with any surplus returned to operators.
The budget, which now awaits Governor Abigail Spanberger's signature, reflects a temporary solution following weeks of disagreement between the Democratic-controlled Senate and House of Delegates. While the Senate had proposed ending tax breaks outright by 2027 and the House pushed for new environmental standards, the final bill incorporates neither of these specific proposals. Governor Spanberger, who helped craft the compromise, indicated her favorable view, citing it as a foundation for future discussions on the industry's environmental and community impact.
In addition to the energy levy, the budget directs the Virginia Department of Environmental Quality (DEQ) to undertake studies on data centers' groundwater impacts and identify areas where water use for cooling systems would be detrimental. The DEQ is also tasked with developing statewide noise abatement regulations by 2030. Analysts from Evercore ISI view the new energy tax as "non-trivial but also not existential" for hyperscalers, estimating an 11% effective increase in electricity rates for data centers and suggesting Virginia's actions could foreshadow similar regulations in other markets.