Key facts
- Virginia lawmakers passed a state budget that includes tax breaks for data centers.
- A new tax on data center energy consumption will be implemented.
- The energy tax is projected to generate up to $600 million annually.
- Surplus revenue from the energy tax will be returned to data center operators.
- The budget does not include the repeal of existing data center sales tax exemptions or new environmental standards.
- The Virginia Department of Environmental Quality will study data center impacts on groundwater and develop noise abatement regulations.
Virginia lawmakers have reached a compromise on data center policies, passing a $250 billion state budget that maintains existing sales and use tax exemptions for these facilities while introducing a new levy on their energy consumption. This new tax is expected to generate up to $600 million annually, with any surplus revenue being returned to data center operators. The legislation comes after weeks of contentious debate between the state Senate and House of Delegates, narrowly avoiding a government shutdown.
The final budget omits the Senate's proposed repeal of the data center sales tax exemption and the House's proposed environmental standards. Instead, the new energy consumption tax, set at just over 1 cent per kilowatt-hour, applies universally to all data centers regardless of their power source. This compromise is viewed as a temporary measure to ensure state government operations continue.
Governor Abigail Spanberger is expected to review the bill, and her administration reportedly helped craft the compromise. The state's pioneering sales tax exemption, which allows firms to avoid a 5.3% tax on equipment, has been instrumental in establishing Virginia as a global hub for data center development. Analysts at Evercore ISI suggest the new energy tax is significant but not existential for major operators, estimating a potential annual burden of around $9.6 million for a 100-megawatt facility, effectively increasing electricity costs by about 11%.
In addition to the energy tax, the budget directs the Virginia Department of Environmental Quality to study the environmental impact of data centers on groundwater and to establish statewide noise abatement regulations by 2030.