Policy Snapshot: Data Center Incentives

Data centers-massive facilities that power websites, email, video streaming and, increasingly, AI applications-are critical to the digital economy. With more than 4,000 data centers nationwide, states are competing to attract these energy-intensive operations through various economic and tax incentives. Proponents believe data centers will promote local economic growth and increase local tax revenues. Virginia, Texas and California together are home to nearly one-third of all data centers, with Virginia alone having 643. At least 38 states offer incentives ranging from sales and use tax exemptions to property tax abatements, often tied to minimum investment thresholds and job creation requirements.

As demand for data infrastructure grows, states are refining their approaches: Some are expanding incentives, while others are scaling back to balance economic development with energy considerations.

• Tax incentives vary widely, from sales and use tax exemptions on construction materials and computer equipment to low (or no) taxes on electricity rates. Eleven states also offer some sort of property tax relief to data centers.

• Many states require a minimum level of job creation to receive incentives, ranging from five jobs in Missouri, Delaware, and Maryland to 50 jobs in Louisiana. In at least five states, including Georgia, Idaho, Illinois, Mississippi, and Missouri, any data center jobs must pay at or above the average local wage to qualify for tax relief.

• Beyond tax incentives, states are funding job training programs to upskill their workforce for data centers. In 2024, Mississippi invested $32 million to a job training program to build two Amazon Web Service data centers.

• Data centers are seen as a major driver of heightened energy demand, which can impact state resources and energy supplies. Illinois requires that data centers become carbon neutral within two years of being placed into service to receive tax incentives.

• Data center operators also use available incentives. In 2023, Virginia's Joint Legislative Audit and Review Commission examined the commonwealth's retail sales and use tax exemption for data centers, finding the incentive provided $928 million in tax relief for fiscal year 2023, and that 90% of the industry uses the exemption.

• In July, Kansas became the 38th state to offer data center incentives, granting a sales tax exemption, including construction and equipment costs, if new facilities invest at least $250 million in the state and create at least 20 jobs within two calendar years of opening.

• Louisiana allowed data centers to be considered an industrial purpose, enabling certain cooperative partnerships between private entities and local governments. The state still requires a $200 million capital investment and limits its tax breaks to 20-30 years.

• Wisconsin removed some limitations on tax incremental financing districts that include qualified data centers in two municipalities. Wisconsin's incentive maintains a lower capital investment threshold for data centers created in less populous counties-$50 million if the population is less than 50,000.

• Iowa altered its data center incentives to impose a 10- or 15-year limit on sales tax exemptions for new data centers constructed in the state, unlike the current indefinite exemption. At the same time, Iowa also granted a property tax exemption for data centers beginning in 2027.

• Taking the opposite approach, Minnesota rolled back its data center incentives, removing their electricity exemption from the state sales tax, although computer purchases made for data centers remain exempt.