Report: Cautionary advice to governments granting overzealous tax breaks
A report from the National Taxpayers Union advises governments against overzealous tax breaks for data centers, citing examples like Loudoun County, Virginia, which cut taxes due to significant data center revenue. The study also addresses concerns about data centers straining water and electricity supplies, suggesting grid updates and on-site power generation. It notes that some states have enacted moratoriums and some companies, like Microsoft, are declining tax incentives.
The National Taxpayers Union, a nonprofit organization, has released two studies advising governments on strategies regarding data center development. The report highlights that data centers can offer significant economic benefits but also cause friction over their demand for water and electricity.
The studies caution against granting excessive tax breaks to data center developers, citing examples such as Abilene, Texas, which approved an 86% property tax break, and Maysville, Ohio, which granted a 100% tax break for 15 years. Conversely, Loudoun County, Virginia, part of "Data Center Alley," is noted for cutting taxes due to the substantial property tax revenue generated by data centers, projected to exceed $1.3 billion in personal property tax from equipment in 2026 alone. The report also mentions a growing backlash from elected officials against generous tax incentives, with some states repealing such breaks.
Microsoft is highlighted for its commitment to declining tax breaks in St. Joseph County, Indiana, as part of a broader pledge not to seek local tax incentives. The studies suggest that as demand for data centers increases, special tax treatment may become unnecessary. On the environmental front, the report addresses concerns about data center energy consumption, pointing to the need for power grid updates and the potential for "behind the meter" power generation using natural gas turbines, fuel cells, or solar power. It also discusses water usage for cooling systems, concluding that while some states with low rainfall like Arizona, Nevada, and Colorado might face concerns, overall data center water usage is comparable to other industries, and solar power opportunities could help companies like Meta and Google meet climate targets.
Furthermore, the report notes that eleven states have approved temporary bans on new data centers, reflecting a broader trend of reconsideration regarding data center impacts and incentives.