Data centers subject to a new utility tax
The Virginia General Assembly has approved a new state budget that imposes an electricity consumption tax on data centers while retaining their sales tax exemption. The budget also mandates environmental protections, including a study on groundwater impact and future regulations for cooling systems and noise abatement.
The Virginia General Assembly has passed a new biennial budget, ending months of negotiations and averting a government shutdown. The budget, which Governor Abigail Spanberger is expected to sign, includes a significant compromise regarding data centers.
Key provisions affecting the data center industry include the retention of the state sales tax exemption, a measure previously considered for elimination. However, a new electrical consumption tax of $0.011 per kilowatt-hour will be imposed on data centers, projected to generate $600 million annually over the next two fiscal years.
Environmental considerations were also addressed, though not as comprehensively as initially pushed by the House of Delegates. The Department of Environmental Quality (DEQ) is directed to conduct a study on the groundwater impact of non-closed-loop data centers, which are known for high water usage. Furthermore, by July 1, 2027, data centers in the Eastern Groundwater Management Area will be required to use air cooling systems, 100% recycled water, stormwater for cooling, or closed-loop systems. The DEQ is also tasked with implementing noise abatement regulations for data centers by the end of 2029, with violations potentially incurring daily fines of $32,500.
A study group is also scheduled to revisit the sales and use tax exemption for data centers and provide recommendations in November, indicating ongoing discussions about the industry's future in the Commonwealth.