Virginia has decided to impose a new electricity tax on its data centers. This marks a significant change in how the state aims to capitalize on the rapid growth of the world’s largest data center market. As per the HB30 conference report, data center operators will pay $0.011 per kilowatt-hour of electricity consumed at each facility monthly from July 1, 2026, until before July 1, 2028. The State Corporation Commission will collect this tax monthly.
The measure is anticipated to generate up to $600 million annually for Virginia’s general fund. Any revenue exceeding this annual cap, after administrative costs, will be allocated to a special non-reverting fund. Refunds will be issued to data center operators based on their share of tax payments.
Importance of the Tax
This new tax structure is significant among major data center states because Virginia is introducing a levy directly related to electricity consumption, rather than modifying existing tax breaks. In other states, discussions often focus on withdrawing tax exemptions, enforcing zoning and permitting regulations, requiring data centers to shoulder more grid-upgrade expenses, or implementing energy and environmental mandates.
Environmental Measures
The budget also incorporates environmental provisions concerning data center cooling and water usage. The Department of Environmental Quality is tasked with establishing criteria for “Cooling Water Scarcity Areas,” particularly concentrated on the Eastern Virginia Groundwater Management Area. In these regions, data centers are expected to utilize air cooling, closed-loop cooling, or more efficient systems as much as practicable.
The department must also study and formulate a plan by October 15 for retrofitting existing data centers in that groundwater management area to adopt air cooling, recycled water, stormwater systems, or closed-loop cooling.
Context of the Decision
The new tax follows disagreements over Virginia’s data center sales tax exemption. Senate Democrats aimed to extract more revenue from this sector, while Governor Abigail Spanberger and House Democrats opposed an earlier Senate proposal to abolish the sales tax exemption. They argued this could violate commitments to companies and harm Virginia’s business climate. Senate Finance Chair L. Louise Lucas and House Appropriations Chair Luke Torian stated that the agreement reflects a dedication to making Virginia more affordable for families.
Industry Reaction
Industry groups voiced concerns about altering Virginia’s incentive structure. The Associated Press reported that the Data Center Coalition warned a tax proposal could “effectively halt investment.” Governor Spanberger has emphasized that data centers should contribute fairly but insisted that Virginia must not renegotiate agreements with companies that have fueled business investment and economic development.
Supporters of increased revenue from data centers, including Lucas and Senate Democrats, have advocated for capturing more funds from the industry for social programs. The Joint Legislative Audit and Review Commission highlighted that Northern Virginia accounts for 13 percent of the global data center operational capacity and 25 percent in the Americas. MultiState has recognized Virginia as having the world’s largest concentration of data centers, with over 200 facilities in Northern Virginia.
Potential Trends in Other States
Other states are contemplating similar measures. Georgia has discussed reducing incentives. The Georgia Senate passed SB 410, aiming to phase out tax breaks for new data centers. Other bills propose suspending new exemption certificates or halting construction.
Ohio is exploring changes as well. Governor Mike DeWine paused new data center tax-break offers, and legislators introduced proposals aiming at cutting incentives, improving water reporting, and developing a data center utility rate class.
Illinois has also taken comparable steps. Governor JB Pritzker has directed the state to pause processing new data center incentive agreements from July 1, while advocating for rules governing electricity rates, water resources, and transparency.