States pushing back on data center sales tax breaks as Wisconsin forgoes $1.5B

Across the United States, a growing number of state legislatures are questioning the economic viability and public benefit of sales tax breaks offered to data center projects. Supporters argue these incentives are crucial for states to attract investment and remain competitive, citing that 38 states currently offer such breaks. In Wisconsin, the debate is particularly prominent. State Representative and gubernatorial candidate Tom Tiffany has pledged to terminate these tax breaks if elected. A report by Wisconsin's Legislative Audit Bureau revealed that the state is set to forgo $1.5 billion in sales tax revenue from the initial construction of four data center projects, with an additional $369 million forgone annually upon their completion. Companies benefiting from Wisconsin's exemption, enacted in the 2023-25 budget, include Microsoft's $20.6 billion data center investment, OpenAI, Oracle, and Vantage Data Centers' $15 billion investments in Port Washington, Epic Hosting's $347 million project in Verona, and Meta's $1 billion project in Beaver Dam. Other states are also active in this policy shift. Virginia's annual sales tax breaks, estimated at $1.6 billion to $1.9 billion, are central to ongoing state budget discussions. Pennsylvania has introduced a new bill aiming to end its sales tax breaks, which are projected to reach $517.2 million annually by 2030-31. Minnesota already terminated its sales tax exemption on electricity for data centers last year, while North Carolina Governor Josh Stern has voiced concerns about similar exemptions, estimating that they could cost his state $450 million annually and questioning the wisdom of subsidizing energy consumption by data centers when it contributes to higher power bills for residents. Conversely, figures like Dale Kooyenga, President of the Metro Milwaukee Association of Commerce, defend the sales tax exemptions. Kooyenga, a CPA, argues that the income and property taxes paid by construction workers on these projects, coupled with the economic activity generated, outweigh the forgone sales tax revenue. He contends that without these incentives, such projects and their associated economic benefits would not materialize in the state.