Virginia enacts $600M tax on data center energy use
Virginia has enacted a new state tax of $0.011 per kilowatt-hour on data center energy use, capped at $600 million annually. This compromise legislation, which expires in 2028, was signed into law by Gov. Abigail Spanberger after contentious budget negotiations. The tax has garnered mixed reactions, with lawmakers, environmentalists, and developers expressing various levels of dissatisfaction.
Virginia has implemented a new state tax on data center energy consumption, charging $0.011 per kilowatt-hour, with an annual revenue cap of $600 million. The tax, which became effective July 1 and expires in 2028, was a result of a budget compromise that narrowly averted a partial government shutdown. Governor Abigail Spanberger signed the legislation into law.
The measure has not been met with universal approval. Lawmakers initially sought to eliminate a nearly two-decade-old sales tax exemption for data center computer equipment and software, which is estimated to cost the state $1.3 billion this fiscal year. When that effort stalled, the energy tax was proposed as an alternative.
Environmental groups, such as Clean Virginia, argue that the tax is insufficient, especially given the continued existence of the sales tax exemption and other corporate income tax breaks. The Data Center Coalition, an industry association, criticized the tax, claiming it will deter investment in the state, despite Virginia being home to the world's largest concentration of data centers. Energy and sustainability researcher Arif Gasilov, however, disputes this claim, noting that the one-cent charge is minimal compared to overall electricity costs and other existing incentives.
The tax applies to data center operators using utility-provided electricity, including renewables, as well as those generating their own power. Utilities like Dominion Energy will collect the tax from their data center clients and remit it to the State Corporation Commission (SCC). Self-generating operators must calculate and pay the tax directly to the SCC and provide quarterly usage reports to the Department of Environmental Quality.