Virginia General Assembly Enacts New Taxes, Regulations on Data Centers

The Virginia General Assembly has approved its 2026-2028 budget, which includes significant new energy regulatory provisions and taxes specifically targeting the data center industry. These measures, passed in a conference report, impose a new consumption tax of 1.1 cents per kilowatt hour on data centers, effective July 1, expected to raise $600 million over the next two years. This is in addition to existing energy taxes and a 1.3 cent per kilowatt hour tax under the Regional Greenhouse Gas Initiative (RGGI), which large users like data centers will pay in full, while residential and small business customers will receive a rebate.

Beyond taxation, the budget introduces several regulatory changes. The Department of Environmental Quality (DEQ) is directed to create "Data Center Cooling Water Scarcity Area Regulations" and study water challenges in Western Loudoun and Fauquier Counties. A key goal is to mandate that all new data centers applying for an air permit after January 1, 2027, use air cooling systems, 100 percent recycled water, stormwater, or closed-loop systems. DEQ will also study retrofitting existing data centers in the Eastern Virginia Groundwater Management Area with these cooling methods.

Furthermore, DEQ is tasked with outlining a new "lowest achievable" noise ordinance specifically for data centers. The State Corporation Commission's budget also includes an amendment that might ease interconnection for new data centers in "historically economically disadvantaged communities." Electricity providers are now mandated to report comprehensive data to the legislature by October 1, including electric service agreements, load, water usage, and permitting information for data center generators. Critics, including Steve Haner of the Jefferson Forum, argue these selective regulations impose a heavy hand on the data center industry and bypassed full legislative debate.