Virginia plans to introduce a new electricity tax targeting data centers, reflecting a change in how it seeks to gain revenue from this growing industry. According to the HB30 conference report, data center operators will pay $0.011 per kilowatt-hour of electricity used at each facility monthly, starting July 1, 2026, and ending before July 1, 2028. The State Corporation Commission will collect the tax every month.
This measure is expected to bring in up to $600 million annually to Virginia’s general fund. Any revenue exceeding this amount, after administrative expenses, will be placed in a special fund and returned to data center operators based on their tax contributions.
Why It Matters
This tax structure stands out among major data center states because Virginia is not merely reducing existing tax benefits. Instead, lawmakers have chosen to impose a new levy linked directly to electricity usage. In comparison, other states often debate repealing tax exemptions, enhancing zoning and permitting, or increasing data center contribution to grid upgrades and environmental standards.
Environmental Considerations
The budget also includes directives related to data center cooling and water consumption. The Department of Environmental Quality is tasked with formulating criteria for areas designated as “Cooling Water Scarcity Areas,” especially in the Eastern Virginia Groundwater Management Area. Facilities in these areas will primarily need to adopt air cooling, closed-loop cooling, or other more efficient methods wherever possible.
Moreover, the department must devise a plan by October 15 to retrofit existing data centers in this groundwater area to employ air cooling, recycled water, stormwater, or closed-loop systems.
Budget Agreement Background
The deal emerged from a larger debate over Virginia’s sales tax exemption for data centers. E&E News noted that Senate Democrats aimed to secure additional revenue from the sector. Governor Abigail Spanberger and House Democrats opposed scrapping the sales tax exemption, citing potential negative impacts on business commitments and the state’s economic climate. Senate Finance Chair L. Louise Lucas and House Appropriations Chair Luke Torian highlighted their commitment to make Virginia more affordable for families.
Opposition to the Tax
Industry groups have criticized changes in Virginia’s incentive approach. The Associated Press stated that the Data Center Coalition claims the tax proposal might “effectively halt investment.” Spanberger’s office communicated to Politico that while she supports data centers paying their fair share, she believes the state should not break existing agreements with businesses contributing to economic development.
Proponents of generating more revenue from data centers, including Lucas and Senate Democrats, have advocated for capturing more funds for social programs. Reports indicate that Virginia’s Joint Legislative Audit and Review Commission observes Northern Virginia comprises 13% of the global data center capacity and 25% in the Americas.
Trends in Other States
Georgia has also discussed limiting incentives. The Georgia Senate passed SB 410 to phase out tax breaks for new data centers. Other proposed bills intend to suspend new exemption certificates or halt construction.
Ohio is similarly active. Governor Mike DeWine halted new data center tax-break offers, with legislation introduced to reduce incentives, regulate water reporting, and create a data center utility rate class.
In Illinois, Governor JB Pritzker has directed a pause on processing new data center incentive agreements, additionally calling for regulatory measures on electricity rates, water management, and transparency.