Data Center Tax Break Under Fire

Virginia is the worldwide leader in data centers, and it has been since the dawn of the modern information age. There are at least 674 data centers in Virginia, and more are on the drawing board.

For example, the Hanover County Planning Commission voted last week to allow the development of a technology park that could contain several seven-story data centers, and Goochland County officials are considering plans for the proposed Tuckahoe Technology Park after the Board of Supervisors adopted the Technology Overlay District and the Technology Zone ordinances last year. 

President Donald Trump recently celebrated the national proliferation of data centers. “Frankly, communities that don’t take a data center, they’re making a mistake because there’s plenty of communities that want them,” Trump told a radio interviewer. “It means jobs, and it means tremendous tax revenue coming into the towns and cities that take them.”

But the picture is more complex on the western side of the Potomac. The growth of data centers is straining power grids in the Commonwealth. The federal government predicts that data centers might use as much as 11.8% of the nation’s electricity by 2030.

They also require massive amounts of water. “As data centers evolve to support our growing digital world, we have both an opportunity and a responsibility to protect community water resources while investing in watersheds and public water infrastructure to ensure we all have a bright future,” Ben Townsend, Google’s Global Head of Infrastructure Strategy & Sustainability, said this week. His company is working to build a data center in Botetourt County and has vowed to spend $10 million to build out water infrastructure in Virginia.

One reason there are so many data centers in the Commonwealth is that, starting in 2010, Virginia law offered data centers a retail sales and use tax exemption as long as the facilities met minimum investment and job-creation requirements. That benefit is slated to remain in place until 2035.

However, a group led by Louise Lucas, the president pro tempore of the Senate, held up the state budget this year until the final week in an attempt to repeal the tax break. In the end, lawmakers agreed to tax electricity consumption by data centers by an additional $0.011 per kWh, effective this summer.

As part of the compromise, a joint subcommittee of delegates and senators is looking into whether to change the tax status of data centers. The group is scheduled to recommend “mechanisms to provide direct revenue to the state from the data center industry” by Dec. 15.

Republican state Sen. Glen Sturtevant called on Gov. Abigail Spanberger last month to stop all new data center development, but she is leaving that decision up to local officials. “We have seen localities in Virginia that may choose to within their locality not welcome data centers, in some cases, actually create a moratorium. That is a local choice,” she said.

That includes Loudoun County, where facilities and property taxes paid by data centers provide 40% of the tax revenue. “People understood that the data centers were the reason we were building schools and keeping taxes low and those kinds of things,” the county’s executive director for economic development said.

State employees reported that the exemption reduced tax revenue by $1.9 billion last year. At the same time, the subcommittee estimates that the high-tech industry produces roughly $1.7 billion in state tax revenue and $3.6 billion in local tax revenues over a five-year period.

Other states are facing similar pressure. As the Daily Signal reported in May, Ohio’s Republican Gov. Mike DeWine halted a tax exemption for new data centers.

Virginia enjoys a good reputation in the business community because it historically keeps its promises. “Issues of stability, predictability, honoring commitments, it’s profoundly important,” Jason El Koubi of the Virginia Economic Development Partnership Authority told lawmakers. “It is a huge strength of Virginia and something that is a huge part of why businesses continue to choose Virginia.”

However, Lucas remained unconvinced. “I don’t care how many of these meetings we have here in Richmond, you’re not going to be able to convince people out in all these localities that we aren’t taking advantage of them, and for that reason, I don’t intend to back down on this issue,” she said.

Lucas said she plans to hold more “listening tours” to hear from people across the Commonwealth.