Because of Virginia’s strong workforce, desirable location, and pro-business tax and regulatory policies, tens of thousands of jobs and billions in tax revenue have been created by our state’s data center industry.
It has been a real economic success for the state, but the General Assembly must now decide how we will handle the considerable impacts of this industry — both positive and negative — in the years ahead.
Virginia is in the midst of a budget impasse over the taxation of Virginia’s data center industry. These facilities can currently qualify for a limited exemption from state sales tax on certain equipment if they meet statutory thresholds for hiring and investment.
Virginia is well within its rights to make sure we are getting what we expect in exchange for a program that has become extraordinarily valuable to the data center industry.
While the data center tax exemption is set to expire in 2035, the Senate’s budget would terminate the program at the end of the year in order to raise more revenue for the state.
The House’s budget would preserve the program but add environmental protection requirements.
Gov. Spanberger wants to ensure Virginia honors the agreements it made with these businesses when they decided to invest billions of dollars in our state.
The data center industry itself has shared proposals that could raise more than $1 billion in revenue while keeping the state competitive for investment.
Clearly, there is a compromise to be had here, and it would be in the long-term best interest of the commonwealth to find one.
We cannot afford to have our state’s consistently top-tier reputation for business investment tarnished by breaking existing commitments or overreaching in our efforts to raise revenue from this industry.
Data center investment and jobs can easily move from one state to another when the economics demand it. The states that win the jobs and investment associated with data centers are those that offer competitive tax treatment and a stable, predictable business environment.
It is important to understand just how mobile data center investment can be. While some data centers are owned and operated by a single company, the majority of data centers are co-location facilities where customers lease computing space from the owner for a period of time. When the data center lease expires, they are free to seek more favorable tax treatment in any state they choose, such as West Virginia, which is openly campaigning for new and relocated data centers.
As we attempt to change the tax policies on these facilities, we must keep in mind that if we go too far without serious and deliberate negotiations, we risk harming our state’s reputation for honoring agreements and being the best state for business.
Virginia has invested hundreds of millions of dollars in business-ready sites and workforce development programs for manufacturing, data centers and other industries. Will businesses be willing to invest here if they know the terms of an agreement might be unilaterally changed?
We must maintain trust and a reasonable approach to negotiation and engagement when making policy changes of this magnitude or put future economic development at risk.
We can make progress here in the best interest of Virginia, but we cannot pursue short-term gain at the cost of long-term pain.
David Marsden has served in the Virginia Senate as a Democrat since 2010. He represents District 35, which covers part of Fairfax County. He is chair of the Senate Agriculture, Conservation and Natural Resources Committee, and a member of the committees on Commerce and Labor, General Laws and Technology, Transportation, and Rules. He can be reached at senatormarsden@senate.virginia.gov.
