Virginia got it done. State lawmakers skidded away from a nightmare of a potential government shutdown with a compromise that put the country’s first data center energy consumption tax on the table. The controversial sales and use tax exemption that saw the data centers pocketing $2 billion last year is still on the books, a not-so-insignificant victory for Gov. Abigail Spanberger (D) and House of Delegates leaders who preserved Virginia’s honor as a state forever “open for business.”
The bipartisan group of state senators who wanted the exemption eliminated had to make do with the consolation prize of imposing an electricity consumption tax on the centers, limited to $600 million each year of the two-year budget deal.
“That’s not nothing, right?” says state Sen. Danica Roem, one of the legislature’s leading data center opponents. The Democrat represents Prince William County, one of the Northern Virginia hot spots for data centers. For the past three years, she’s tried and failed to have data centers’ sales and use tax exemption repealed.
“I can go home and defend that to a point, while at the same time, my constituents are absolutely fed up with the idea that they have to pay sales tax, and the data center industry does not,” Roem says. “What is a multitrillion-dollar industry with individual multitrillion-dollar players? They should be paying their entire share.” She plans to have another tax exemption repeal on tap for 2027.
The two-year plan doesn’t answer the ultimate questions about how and when to tax data centers or the longer-term problems created by the facilities’ voracious energy consumption—usage issues have been historically passed on to residents, who end up paying the exorbitant rates.
Lawmakers will soon find out that their data-centers-produce-revenues mindset comes with electoral consequences.
Despite the bad-for-business complaints about taxes from the data center sector, its developers and operators will be unhindered—in fact, fine. That alone might be enough to convince Virginia residents living in one of the world’s largest data center markets of the absurdity of the proposition that’s becoming clear with every new data center project—the ones they know about as well as the ones that sneak up on them—that it’s a Big Tech world and residents are just living in it, the inverse of the way states and localities should operate.
Virginia lawmakers are hyperconscious of tax revenues provided by the sector. Residents accepted the state’s position until they began to connect the dots between that dominance and higher energy prices for residential ratepayers.
Those lawmakers will soon find out that their data-centers-produce-revenues mindset comes with electoral consequences. “If you want to get elected, you better figure out how to be on the right side of this issue; there’s no greenwashing or BS-ing,” says Elena Schlossberg, executive director of the Coalition to Protect Prince William County, a local community advocacy group. “You’ve got to pass the legislation, you’ve got to be out there doing the right thing, and your votes are going to have to demonstrate that.”
AFTER A YEAR IN THE LEGISLATURE dominated by the data center taxation debate, the compromise almost seemed to come out of nowhere. It didn’t. Once it became crystal clear that the Senate didn’t have the support of the House and the governor for a wholesale repeal of the tax exemption, the compromise got new life.
“It doesn’t totally surprise me that there was some kind of compromise agreement worked out— just because nobody wanted a shutdown, but it is still just extremely disappointing,” says Ben Verschoor, a leader of the Southwest Virginia Data Center Transparency Alliance.
Virgina lawmakers returned to an earlier consumption tax proposal offered by the data center industry. Beginning on July 1, data center owners pay an electricity consumption tax at $0.11 per kilowatt-hour of electricity consumed per month at each data center. What the industry also wanted was a ten-year extension of the sales tax exemption, currently scheduled to expire in 2035. Lawmakers managed to bat that away.
State senators wanted an immediate repeal of the exemption. They argue that residential taxpayers don’t want to put up with subsidizing the tech giants as they watch their portfolios multiply in value. As the indomitable Sen. Louise Lucas, the 82-year-old president pro tempore of the Virginia Senate, put it to Spanberger last month: “Governor, read the damn room.”
“She really put her foot down and absolutely demanded that the data centers do something toward paying their fair share,” says Roem.
The data center electricity consumption tax caps state revenues at $600 million. Those monies go into the general fund. Any sum above and beyond that amount goes into a “special, nonreverting fund,” for refunds. The refunds aren’t destined for residential ratepayers; they’ll go to data center operators.
The state does collect the interest on that amount, which will be deposited in the general fund. While $600 million annually is not nothing, it’s not the same as the nearly $2 billion boost that the state would have hauled in last year if not for the sales tax exemption.
For the data center sector, by comparison, the energy consumption tax was a bargain—which is why the squawking from the sector wasn’t too loud. Indeed, after the budget vote, Stack Infrastructure, a Denver-based data center developer and operator, announced that they intended to proceed with an AI data center project in Pittsylvania County, southwest of Richmond on the North Carolina border. For Roem, that decision illustrated that the industry really isn’t worried about the consumption tax.
State regulators are becoming more aggressive about reining in the sector’s energy demands. At the end of last year, Virginia’s State Corporation Commission (SCC), which regulates public utilities, insurance, state-chartered financial institutions, and other sectors, introduced a rate class exclusively for facilities 25 megawatts and higher, like data centers, that consume tremendous amounts of electricity. The SCC set the transmission and distribution demand charges that these customers must pay at 85 percent, and generation demand charges at 60 percent.
Regulators also set aside the initial rate hike request from Dominion Energy, the state’s largest power company and political bigfoot, that would have raised rates by nearly 25 percent in 2026 and a whopping 50 percent in 2027.
Roem wants to see the legislature take a tougher stance on data center taxation. In addition to eliminating the sales tax exemption, she also supports a basket of fixes to level the playing field for residents, including a statewide moratorium, a law prohibiting by-right development, and restricting data center construction to areas zoned for industry.
“I had a bill in this year that would have required [Dominion] to pay 100 percent of the energy costs that they contract out for,” says Roem. “If I had my way, I would just go hard in the paint on all this.”
Lawmakers in other states have already read the room and are trying to get out in front of voter anger about Big Tech, AI, and data centers. New York became the first to pass a statewide moratorium on the centers after Maine backed off one. Perhaps fearing a new state backlash, the data center developer in the middle of the controversy in Maine gave up on a data center proposal in the town of Jay after Gov. Janet Mills (D) had vetoed a ban and, in the process, helped doom her Senate bid by trying to protect the small-town project. Nearly a dozen other states have passed a moratorium or are studying one.
In Utah, Republican primary voters ousted the longtime state Senate president, J. Stuart Adams (R-Layton), the force behind a colossal 40,000-square-foot data center proposal in Box Elder County, on track to be one of the largest in the world.
The electoral consequences of data center sector expansion, tax credits, and more will be coming for Virginia state lawmakers, too. All the seats in the Senate and the House of Delegates will be up for grabs in 2027.
