Virginia has introduced a new tax targeting data centers, aiming to capitalize on the industry’s growing footprint. Starting July 1, 2026, data center operators will pay $0.011 per kilowatt-hour of electricity consumed each month until June 30, 2028. This tax could raise up to $600 million annually for Virginia’s general fund. The State Corporation Commission will collect this tax monthly.
Any revenue exceeding the $600 million cap, after deducting administrative expenses, will go into a special non-reverting fund. This fund will refund data center operators based on their contributions.
Why It Matters
Virginia’s approach is different from other major data center states, which usually focus on repealing existing tax incentives or increasing operational costs through zoning and environmental regulations. Virginia’s decision to impose a levy directly linked to electricity consumption marks a distinct strategy.
What To Know
The budget includes environmental considerations for data centers. The Department of Environmental Quality will create criteria for “Cooling Water Scarcity Areas,” especially targeting the Eastern Virginia Groundwater Management Area. In these zones, data centers should prioritize air cooling, closed-loop cooling, or other efficient systems.
By October 15, the department must propose plans for retrofitting existing facilities in these areas to use alternative cooling methods and water sources, including recycled water and stormwater.
This development follows prolonged disagreements regarding the existing data center sales tax exemption. Although Senate Democrats favored increased sector revenue, Governor Abigail Spanberger and House Democrats highlighted the potential risks to business commitments and the state’s economic attractiveness. According to Senate Finance Chair L. Louise Lucas and House Appropriations Chair Luke Torian, the agreement aims to make Virginia more affordable for families.
Pushback on the Data Center Taxation
Industry representatives have cautioned against altering Virginia’s incentives. The Data Center Coalition warned that the tax could deter investments. Governor Spanberger indicated that while data centers should contribute equitably, Virginia must honor its business commitments to avoid damaging the investment climate.
Proponents of increased revenue from data centers, including Lucas and Senate Democrats, have advocated for capturing more profits to support social services, according to reports by Inside Climate News.
Virginia’s Joint Legislative Audit and Review Commission notes that Northern Virginia hosts 13% of global data center capacity and 25% within the Americas. MultiState reports the region as the world’s largest data center hub, featuring over 200 facilities.
Which States Could Be Next?
Other states are also reevaluating their data center incentives. In Georgia, the Senate approved a bill to phase out tax benefits for new data centers. Ohio has put a temporary hold on new tax-breaks, scrutinizing incentives and focusing on water usage and utility rates. Similarly, Illinois is pausing incentive agreements while establishing rules on electricity and water resource management.
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