New York Governor Hochul Proposes Repealing Data Center Sales Tax Exemptions Amid Criticism

Governor Kathy Hochul of New York recently unveiled a community investment framework designed to protect communities from "exploitative data center development." This initiative follows a one-year moratorium on new data center construction that Hochul enacted in July.

A key component of the new framework is the pursuit of legislation to eliminate sales tax exemptions for large data centers across the state. Business leaders, including Pete Sepp, president of the National Taxpayers Union, have criticized the proposal. Sepp argues that repealing these exemptions, which he describes as a "longstanding feature of most state tax codes" for raw materials and equipment, would be discriminatory against data centers. He warns that such a move could make New York uncompetitive and lead to higher prices for goods and services for consumers, who rely on data centers for various aspects of daily life, from groceries to social media.

Governor Hochul, however, maintains that her approach aims to ensure communities hosting data centers receive fair compensation, particularly smaller, rural areas lacking resources to negotiate. The framework recommends a $50 million community investment for a 50-megawatt data center and mandates annual reporting on metrics like employment, water and utility usage, and energy demand. Hochul noted that New York currently has 30 applications for hyperscale data centers, emphasizing the need for a thoughtful approach beyond just implementing a moratorium.