Virginia’s Data Center Tax Debate: Context for the Conversations Ahead

Virginia families deserve to live free from environmental pollution, have affordable utility bills, and live in communities with resources for everyone to thrive. For more than a decade, Virginia has allowed qualifying data centers to avoid paying sales and use taxes on certain equipment, forgoing revenue that could otherwise help fund local communities, public schools, roads, and other public investments. As the industry has grown, so has the debate over whether that tax break reflects Virginia’s priorities. 

While lawmakers reached a compromise, asking data centers to pay up to $1.2 billion through a temporary electricity use tax, the sales and use tax break remains in place. The next phase of that conversation shifts to the Joint Subcommittee on Tax Policy, where lawmakers will study the data center tax break and the industry’s impact throughout the commonwealth. The ongoing discussion is about more than just one tax break. It reflects broader debates around corporate tax avoidance, tax fairness, who benefits from the state tax code, and how Virginia will generate the revenue needed to sustain investments in thriving communities. Understanding that context is critical to the choices that lawmakers will consider in the months ahead.

While families are struggling with affordability, some of the world’s largest and most profitable corporations continue to receive one of the state’s largest tax advantages — even as these corporations and their wealthy shareholders are being handed down tax breaks from the federal government. 

Another corporate giveaway

Alphabet (Google’s parent company), Amazon, and Meta all have a data center presence in Virginia. Together, they avoided nearly $50 billion in federal taxes alone in 2025. After accounting for tax breaks and other provisions, Amazon paid just 1.4% of its profits in federal taxes, and Meta paid 3.6% — both lower than what the average Virginian paid in state income taxes (5.4%) in 2023. These companies’ low tax bills were made possible by federal tax breaks that H.R. 1 expanded even further. The Trump administration-backed tax giveaways were paid for in part by blocking access to food and health care through SNAP and Medicaid cuts. 

Data centers are owned by, or support the operations of, some of the largest corporations in the world. Many of those companies already benefit from substantial federal tax breaks. They do not need another tax break at the expense of investment that could otherwise be made in Virginia families.

Implications for tax fairness

Sales and use taxes provide a key source of revenue to support local communities and public schools. Families across Virginia continue to pay sales and use tax on most physical goods, including the 1% local rate on groceries and hygiene products. Yet data centers receive one of the state’s largest sales tax exemptions.

Virginia has an upside-down tax code, where people with the lowest incomes pay a larger share of their income in state and local taxes than the wealthiest households. While sales taxes play an important role in funding our communities, they are large contributors to this uneven structure because they do not account for a person’s ability to pay. 

Households with low and moderate incomes typically spend a larger share of what they earn on necessities and other everyday purchases, meaning they also pay more in sales taxes as a share of their income. Due to discrimination and barriers to educational opportunity and good-paying jobs, Black and Latino families are more likely to have lower incomes and be harmed by this imbalance. 

While thousands of Virginia families continue to pitch in to support the public services we all rely on — even while balancing tight household budgets — just a few data center companies siphon over a billion dollars in foregone revenue. As lawmakers revisit the exemption, they have an opportunity to build a more fair tax code where those at the top pay what they owe while generating the revenue needed to invest in the building blocks of thriving communities.

Local revenue, statewide impacts

Some Virginia localities benefit significantly from data center tax revenue, but that revenue does not replace the billions of dollars the state chooses to forgo through the sales and use tax break or address the industry’s statewide impacts.

Virginia hosts the largest concentration of data centers in the world. While communities across the state are seeing a growing presence, much of it is in Northern Virginia’s Data Center Alley,” particularly Loudoun and Prince William counties. 

Localities collect revenues from data centers largely through property taxes, including property taxes on land and buildings and personal property tax on data center computing equipment. Loudoun expects nearly $1.3 billion in revenue from data center personal property taxes for its budget that ends June 2027 – 40% of its general fund. Prince William expects $334 million from its tax on business property, which includes a tailored rate on data center computer equipment. 

Those local revenues are important. But the impacts of data centers extend far beyond county lines. Data centers arguably use both state and local resources — from roads and water systems to the electric grid —  and create statewide challenges and costs. Localities should certainly be able to exercise their tax authority to ask one of their largest industries to contribute to their budgets, and the state should do the same.

A growing national conversation

While Virginia is unique in its concentration of data centers, it’s hardly unique in grappling with the industry’s rapid growth and the impact on communities. As data centers have expanded into more neighborhoods and technologies like AI have impacted how we work and interact, public opinion on data centers has shifted drastically. In Virginia, polling found that 69% of voters were comfortable with a data center being built in their community in 2023. By 2026, that fell to just 35%. Similar shifts are happening nationwide.

State lawmakers across the country have responded in kind. Responding to increasingly negative sentiment around data centers and their impacts on our communities has become a bipartisan issue. At least 14 other states considered or are considering proposals to end or limit data center development in their own legislative sessions. In some states, like Ohio and Utah, governors have taken action to pause or regulate data center development. Even in Texas, Governor Greg Abbott proposed to limit the industry, including getting rid of the state’s sales tax exemption for data centers. And in Virginia, Republican and Democratic senators have called for a pause on new development while the state considers its impacts on water, electricity, community well-being, and other resources.

What next?

The budget compromise settled this year’s negotiations, but it did not settle the larger debates. The Joint Subcommittee on Tax Policy will study the sales and use tax exemption and the broader impacts of the data center industry throughout the commonwealth before making recommendations ahead of the 2027 legislative session. The work will provide another opportunity for lawmakers to fulfill a promise to address data center concerns and to make progress toward a more fair tax code that provides lasting revenue for our communities.

Want to know how we got here? Read “Virginia’s Data Center Tax Debate: What Changed and Why It Matters” for a breakdown of what lawmakers considered and what made it into the final budget.

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Budget & Revenue