Virginia lawmakers are at an impasse over tax incentives for the state’s booming data center industry, delaying the passage of the state budget.
Nearly 20 years ago, Virginia established a sales tax exemption for data center equipment, including servers, networking gear, and software. The incentive helped position Virginia as a leading hub for data centers, attracting billions in investment and thousands of jobs, according to AP reporting.
With artificial intelligence driving new demand, some lawmakers argue the industry may no longer need the tax break. The Virginia Senate has voted to end the $1.6 billion annual exemption, while the House of Delegates and Rep. Abigail Spanberger’s office have voiced support for maintaining it, citing concerns that eliminating the incentive could deter future investments.
Delegate Sam Rasoul said the funds could instead support local communities.
“Two billion dollars is a lot of money to be coming out of our pocketbooks,” Rasoul said. “I’d love to see more of that money reinvested in our schools, into our communities, and hopefully we’ll have some kind of consensus here soon.”
Community groups in Southwest Virginia, including the Southwestern Virginia Data Center Transparency Alliance, are urging lawmakers to end the exemption. They argue that while data centers benefit financially, local communities face infrastructure and resource pressures, such as increased water demand from new projects like a proposed Google data center in Botetourt County.
The General Assembly is scheduled to reconvene April 22 to continue work on the budget, leaving the future of data center tax breaks unresolved.