NC budget scales back data center tax break
North Carolina's new state budget has repealed a sales tax exemption for electricity used by data centers, aiming to generate an estimated $21.4 million in additional state revenue by fiscal year 2026-27. This move, supported by Gov. Josh Stein, addresses concerns about data center energy consumption, potential ratepayer cost increases, and environmental impacts, though other data center tax breaks remain intact. The action is a partial victory for critics and follows broader discussions about regulating the industry.
North Carolina has enacted a new state budget that repeals a sales tax exemption on electricity used by data centers, a move anticipated to generate an additional $21.4 million in General Fund revenue by fiscal year 2026-27. This change, which was signed into law by Gov. Josh Stein, aims to reduce consumer subsidies for the rapidly expanding data center industry, addressing concerns about increased electricity demand and potential utility cost hikes for residents and small businesses. While specific to electricity, other tax incentives for data center support equipment and software remain.
The budget provision represents a partial victory for critics who have voiced concerns over the state's data center incentive structure. Earlier legislative efforts, such as House Bill 1213, "the Protect Taxpayers and Consumers Act," sought broader repeals of tax exemptions. Gov. Stein's Energy Policy Task Force had also initiated a review of these exemptions. Supporters of the incentives, including Patrick Riley of the North Carolina Blockchain + AI Initiative, argue that these policies are crucial for maintaining the state's competitiveness in attracting major technology investments, particularly for AI infrastructure.
This legislative action follows a separate debate in the House regarding the "Ratepayer Protection Act," which proposes additional regulations for large data centers to safeguard ratepayers, water resources, and grid reliability. Rep. Matthew Winslow, R-Franklin, emphasized that the measure aims to prevent the costs of data center expansion from burdening households and businesses already facing higher utility bills. Amid these developments, polls indicate strong public support for requiring new data centers to provide their own energy generation, highlighting growing statewide and local scrutiny over the impacts of data center development.