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By Joe Edwards
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Virginia’s budget deal would impose a new electricity tax on data centers, marking a shift in how the world’s largest data center market is trying to capture revenue from the industry’s rapid growth.
According to a HB30 conference report, data center operators would pay $0.011 per kilowatt-hour of electricity consumed at each facility each month beginning July 1, 2026, and ending before July 1, 2028. The State Corporation Commission would collect the tax monthly.
The measure is expected to raise up to $600 million a year for Virginia’s general fund. The budget's language and provisions says any revenue above that annual cap, after administrative costs, would be placed in a special non-reverting fund and refunded to data center operators based on their share of tax payments.
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Why It Matters
The tax structure may be unusual among major data center states because Virginia is not simply reducing or repealing an existing tax break. Lawmakers have agreed to impose a new levy tied directly to electricity consumption.
In other states, debates have more commonly centered on rolling back tax exemptions, tightening zoning and permitting, requiring data centers to pay more grid-upgrade costs, or adding energy and environmental requirements.
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What To Know
The budget also includes environmental language aimed at data center cooling and water use. The Department of Environmental Quality would be directed to develop criteria for “Cooling Water Scarcity Areas,” with a particular focus on the Eastern Virginia Groundwater Management Area. In those areas, data centers would generally be expected to use air cooling, closed-loop cooling or more efficient systems “to the maximum extent practicable.”
The department would also have to study and provide a plan by October 15 for retrofitting existing data centers in that groundwater management area to use air cooling, recycled water, stormwater or closed-loop systems.
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The deal followed a broader disagreement over Virginia’s data center sales tax exemption. E&E News reported that Senate Democrats pushed to extract more revenue from the sector, while Governor Abigail Spanberger and House Democrats opposed an earlier Senate proposal to repeal the sales tax exemption, arguing that it could amount to breaking commitments to companies and could harm Virginia’s business climate.
Senate Finance Chair L. Louise Lucas and House Appropriations Chair Luke Torian said in a joint statement that the agreement reflected a commitment to making Virginia more affordable for families.
Pushback on the Data Center Taxation
Industry groups have warned against changing Virginia’s incentive structure. The Associated Press reported that the Data Center Coalition said a tax proposal would “effectively halt investment,” while Spanberger’s office told Politico earlier this year she believes data centers should pay their fair share but Virginia should not be “should not be going back on agreements it has signed with companies that have brought business investment and substantial economic development to the Commonwealth.”
Supporters of raising more revenue from data centers, including Lucas and Senate Democrats, have pushed to capture more money from the sector, with Inside Climate News reporting that Lucas and many Senate Democrats sought to generate revenue for social programs.
Virginia’s Joint Legislative Audit and Review Commission reports that Northern Virginia accounts for 13 percent of reported global data center operational capacity and 25 percent of capacity in the Americas. MultiState has said Virginia has the world’s largest concentration of data centers, with more than 200 facilities in Northern Virginia.
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Which States Could Be Next?
Georgia has already debated curbing incentives. The Georgia Senate passed SB 410, which would phase out tax breaks for new data centers, according to The Current GA, and other bills proposed suspending new exemption certificates or pausing construction.
Ohio is also active. Governor Mike DeWine paused new data center tax-break offers, and lawmakers introduced legislation cutting incentives, addressing water reporting and creating a data center utility rate class, per the Ohio Capital Journal.
Illinois has moved in the same direction. Governor JB Pritzker directed the state to pause processing new data center incentive agreements from July 1, while calling for rules on electricity rates, water resources and transparency.
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