How Data Centers Preserved Their $2 Billion Virginia Tax Break
The Virginia legislature concluded a chaotic special session after months of dispute over a $2 billion sales tax exemption for data centers. Despite strong opposition to the tax break, the industry successfully preserved its exemption by agreeing to a new annual electricity consumption tax. This outcome could serve as a model for other states reviewing data center tax incentives.
The Virginia legislature recently concluded a chaotic, months-long special session marked by a sharp split among Democratic leaders over a lucrative sales tax exemption for data centers. The dispute centered on a $2 billion sales tax break that had significantly benefited the data center industry, the largest market of its kind in the world. Facing increasing public opposition and calls for repeal from some lawmakers, data center developers and operators, represented by a formidable lobbying coalition led by the Data Center Coalition, proposed a novel solution: a new annual electricity consumption tax.
Spearheaded by the Data Center Coalition, whose members include major tech companies like Amazon, Google, Microsoft, and Meta, the industry sought to preserve its sales tax exemption. Key figures in the legislative battle included Del. Vivian Watts, chair of the House Finance Committee, and Sen. L. Louise Lucas, a vocal opponent of the exemption and a powerful figure on the Senate Finance and Appropriations Committee. Senator Lucas, representing Portsmouth, advocated for terminating the exemption to fund tax rebates for families. House Democrats and Governor Abigail Spanberger initially supported the exemption, citing its importance for Virginia's pro-business reputation.
Ultimately, lawmakers and Governor Spanberger enacted a two-year, $205 billion budget that maintained the sales tax break, albeit without an extension beyond 2035. In return, a new $1.2 billion electricity consumption tax was imposed on data centers over the next two fiscal years. Industry opponents, including the Piedmont Environmental Council and the Virginia Data Center Reform Coalition, expressed disappointment, vowing to continue fighting for the exemption's full repeal, while the industry itself views the outcome with "continuing uncertainty" due to the new tax and the lack of a long-term extension for the sales tax break.