Virginia has a new two-year budget. Here’s what lawmakers no...
Virginia's new two-year budget introduces an energy-use tax on data centers and implements stricter rules regarding water consumption and noise levels. These measures are a direct response to the industry's rapid growth and local community concerns across the state, which hosts the world's largest data center hub. A work group will also study potential changes to the sales and use tax exemption for data centers.
Virginia's recently finalized two-year state budget includes significant new regulations for the data center industry, a move characterized as the state's initial effort to address the sector's rapid growth and community concerns. The budget imposes a new energy-use tax of $.011 per kilowatt hour on data centers, capped at $600 million annually, while preserving the existing sales and use tax exemption.
Key provisions in the budget, as detailed by lawmakers like Sen. Scott Surovell (D-Fairfax), also mandate stricter environmental controls. Data centers will now be required to minimize water usage, particularly in designated scarcity areas and the Eastern Virginia Groundwater Management Area. The Department of Environmental Quality (DEQ) is tasked with identifying these areas by July 2027 and requiring data centers within them to adopt best available water-efficient technologies by 2032. Governor Abigail Spanberger's amendment, which allows for some evaporative cooling in conjunction with other technologies, drew criticism from senators such as Danica Roem (D-Prince William) and Richard Stuart (R-King George), who argued it diluted water conservation efforts.
Additionally, the budget requires the DEQ to establish and enforce noise level regulations for data centers by 2029, with violations incurring a daily fine of $32,500 starting in 2030. A legislative work group, championed by Senate Finance Chair Sen. L. Louise Lucas (D-Portsmouth), will further study the sales tax exemption and explore additional ways for data centers to contribute revenue, with a report due to the General Assembly in November.