Virginia budget heads to Gov. Spanberger as data center tax debate shapes final deal

Virginia's budget bill has been sent to Governor Abigail Spanberger, who is expected to propose amendments before lawmakers take final action on the spending plan. A significant point of contention during the legislative process was the taxation of Virginia's rapidly growing data center industry.

The approved budget includes a new, temporary electricity consumption tax on data centers, which is projected to generate $1.2 billion over the state's two-year budget cycle. Additionally, the budget directs the Joint Subcommittee on Tax Policy to undertake a comprehensive review of potential modifications to the tax code, specifically examining whether to sunset the existing sales and use tax exemption currently provided to the data center sector.

Rodrigo Soto of the Commonwealth Institute for Fiscal Analysis, a former aide to Delegate Kathy Tran, highlighted that the state has been foregoing approximately $2 billion annually in revenues due to this exemption. He stressed the ongoing discussions regarding how to ensure the data center industry contributes its "fair share" of taxes, noting that this issue was a primary impediment to advancing other budget investments in critical areas like healthcare and education.

Governor Spanberger has publicly acknowledged the budget as a compromise. While her anticipated amendments may be largely technical, behind-the-scenes discussions are ongoing between the legislative chambers and the governor's office to ensure a final budget is enacted by the July 1st deadline. Soto also pointed out that Virginia frequently completes its budget work outside the regular session, making this year's extended timeline not entirely unusual.