States are increasingly questioning and in some cases, rolling back, tax incentives previously offered to data center developers. These incentives, primarily sales tax exemptions on construction materials and equipment, were initially designed to attract technology jobs and investment. However, the costs have far exceeded initial projections, with states like Virginia, Texas, and Georgia facing billions of dollars in foregone revenue. Virginia, for instance, saw its estimated sales tax exemptions soar from initial annual projections to $1.6 billion in fiscal year 2025, while Texas surpassed $1 billion in exemptions for the same period.
Unlike traditional manufacturing plants, data centers create relatively few on-site jobs, challenging the initial economic development promises. For example, agreements in Ohio involving companies like Amazon, Meta, and Google collectively promised to invest $13 billion and create 496 jobs, while the state expects to forgo $142 million in tax revenue in the next fiscal year. Advocacy groups like Good Jobs First highlight that these facilities create "very few jobs and very little economic development," prompting calls for an end to these tax breaks.
The significant increase in the cost of these exemptions has led to pushback from states. Ohio and Illinois have paused new exemptions, Arizona enacted a three-year pause, and New York is considering a one-year moratorium on permits for new large-scale sites. Lawmakers in at least 24 of the 38 states offering incentives have introduced proposals to curtail or repeal them, though many have not yet passed. New Jersey recently ended a $500 million tax credit program for data centers, citing growing criticism of their community impact. The Data Center Coalition warns that revising or repealing these programs creates uncertainty for businesses, but concerns about soaring energy costs, increased power bills, and resource strain are driving the re-evaluation.
