States that initially offered generous tax incentives to lure data centers, like Ohio, are now reversing these policies as the artificial intelligence boom has dramatically amplified the cost of these exemptions and fueled public opposition. Ohio, for instance, saw its sales tax exemption for data center equipment balloon to over $1.5 billion last year, more than ten times the initial state estimate. This surge in cost, coupled with voter outrage, prompted Republican Governor Mike DeWine to pause new applications for the sales-tax exemption in May.
This shift is playing out across the country, with legislators and governors in over 10 states, including Illinois, New Jersey, and Washington, putting the brakes on such tax breaks. The reversals highlight how these facilities, once seen as economic boons, are now being treated as political liabilities. For example, New Jersey canceled the remaining $250 million of a half-billion-dollar tax credit for data centers just last month, after a 35-4 senate vote.
Public and political opposition stems from concerns about rising electricity costs, the burden on power grids, and heavy water usage. Nationwide average wholesale electricity prices climbed between 2% and 6% due to data center demand, and they were the primary driver behind U.S. electricity consumption reaching a record high in 2025. According to a March Gallup poll, about 70% of Americans oppose data centers in their communities, with nearly half expressing strong opposition. This sentiment is forcing politicians, including governors like Greg Abbott of Texas and Josh Shapiro of Pennsylvania, to take steps to restrict data center development.
Some lawmakers, such as Democratic Representative Tristan Rader, are advocating for the repeal of existing sales-tax exemptions and the renegotiation of past deals with tech giants like Amazon.com, Meta Platforms, and Alphabet’s Google, which have secured exemptions for decades. Rader argues that these companies have ample resources and do not require such incentives, proposing new data-center taxes and requirements for developers to contribute more towards power and electrical infrastructure. States like Virginia are even implementing new taxes, such as a tax on electricity consumed by data center operators, while maintaining sales tax exemptions.
While states like Ohio, Arizona, and Illinois have become less attractive for new data center projects due to these changes, industry executives suggest that future projects might shift to states like Indiana, West Virginia, and Wyoming, which still offer favorable tax regimes. Amazon, which has invested nearly $40 billion in Ohio data centers since 2015 and paid almost $11 million in state property taxes and fees last year, maintains that the industry provides significant benefits, including job creation and contributions to local schools and police departments.
