States Rethink Data Center Tax Incentives as Costs Soar

States are reassessing tax incentives for data centers amid rising fiscal impacts from these programs. In Virginia the annual fiscal impact of an early data center incentive has increased from about 1.5 million dollars to 1.6 billion dollars. Officials note that the unabated taxes reported in state financial documents reflect substantial capital investments tied to the incentives. After implementing and expanding these incentives over years, some states have begun reviewing their packages. Nearly 100 bills addressing the tax treatment of data centers have been introduced or carried over into the current year. Virginia has several bills aimed at limiting or capping incentives. Proposals would condition sales tax exemptions on meeting energy standards. Another measure would impose a land conservation tax on large facilities while a third would mandate annual reports on operators receiving exemptions and their progress on job and investment goals. Legislation in other states takes a more restrictive approach. One South Dakota bill would prohibit authorizing any tax incentives for data centers along with other restrictions. Proposals in Georgia and Maryland would repeal sales tax exemptions or existing incentives for data centers. A number of proposals in Colorado, New Mexico and Washington would expand or create new incentives. Scheduled hearings in the next few weeks could offer early indications of how states intend to proceed.