en.Wedoany.com Reported - Virginia lawmakers have approved a new tax on electricity consumption by data centers, included in a roughly $75 billion two-year spending plan. Under the compromise, data center operators will pay a tax of $0.011 per kilowatt-hour on electricity consumption while retaining sales and use tax exemptions. Senate lawmakers had previously proposed ending the exemption in 2027, eight years earlier than its original expiration date.
The dispute over data center tax exemptions became one of the most contentious issues in this year's budget negotiations. The House and Senate met in April, then recessed to allow negotiators to resolve a prolonged stalemate, returning on June 22 to finalize the budget legislation. The spending plan passed 23-16 in the Senate and 71-22 in the House.
The compromise includes several new oversight provisions. Lawmakers directed a legislative panel to review the state's sales and use tax exemption for data centers. The 5.3% exemption on server equipment and software costs the state nearly $2 billion annually. Data centers meeting certain conditions, including investing at least $150 million and creating at least 50 jobs, or investing $70 million in economically distressed areas and creating 10 jobs, are also exempt from state retail sales and use taxes.
Virginia Senate President Pro Tempore Louise Lucas, a Democrat who most actively advocated for ending the tax exemption, said the budget achieved a balance among the Senate, House, and governor before Monday's vote. Lucas noted that the cost of exemptions for computers and other equipment has grown significantly since the exemption was first implemented, with initial state revenue losses of about $1.4 million expanding to roughly $1.9 billion annually. "If we allow this to continue until 2035, imagine how much tax revenue the state will forgo," Lucas said. Under the compromise, state revenue from the new electricity consumption tax is capped at $600 million annually, with excess amounts proportionally refunded to operators.
The final budget also includes provisions requiring the Department of Environmental Quality to establish criteria for identifying water-scarce areas to minimize data center impacts, and directing the State Corporation Commission to collect information on data center energy, water, and backup generator usage. The bill requires state regulators to develop standards for addressing water usage and noise impacts. The legislation has now been sent to Governor Abigail Spanberger, a Democrat, who must sign or exercise line-item veto power by June 29. Spanberger said the compromise reflects her administration's input and provides a framework for future discussions on the environmental and community impacts of the data center industry.
Stakeholders on both sides of the data center debate criticized the compromise. The Data Center Coalition, representing the industry, argued that the new tax and regulatory requirements could undermine Virginia's position as a destination for data center investment. But advocates said the data center tax is insufficient. Environmental advocates stated that lawmakers failed to adequately address issues related to the industry's rapid expansion, including impacts on energy and water resources. Several environmental provisions were removed earlier in budget negotiations. Lawmakers described this as a temporary solution, saying they plan to conduct further study and propose new recommendations. Lucas said residents' concerns about the industry's growth are legitimate. Virginia, which hosts about 35% of the nation's data centers, is currently under extreme drought conditions, heightening concerns about the industry's water demands.
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