One of the best pieces of advice comes from the Spider-Man comics: “With great power comes great responsibility.” Stan Lee originally wrote that line as narration, although in movie versions it’s often spoken by either Uncle Ben or Aunt May as advice to the young Peter Parker.
It is also good advice for anyone — particularly Virginia lawmakers as they tussle over whether and how to change the tax incentives for data centers.
These tax breaks started small and, in their original iteration in 2008, were only aimed at Mecklenburg County, which was then competing for an Apple data center (which it lost to North Carolina, although the county later landed Microsoft). In time, they were expanded statewide, and the impact was originally listed as “unknown” because no one then really understood how the world was about to change. Now we know: Virginia forgoes $1.9 billion a year in taxes through a sales and use tax exemption that data centers enjoy.
The essential question in the debate over data centers is whether that forgone tax revenue constitutes a giveaway or an investment.
The only way to know for sure is to do away with those tax breaks: If data centers stay — and keep coming — then those exemptions were a giveaway. If data centers leave — and/or stop coming — then they were an investment.
The former outcome seems perfectly acceptable, even desirable: Do we need to offer tax incentives for an industry that would come here anyway? Probably not, right? The latter, though, seems a drastic way to figure this out. Senate Finance Chair Louise Lucas, D-Portsmouth, has her eyes on that $1.9 billion that she thinks should be collected. That’s a lot of money that could be used for worthy purposes. However, it doesn’t do much good to grab that $1.9 billion now, only to discover in a few years that the industry in Virginia has withered away without those tax incentives and that $1.9 billion is no longer coming in.
That raises a math question: If these tax incentives for data centers really are an investment, as supporters insist, what kind of investment is it? We know that the gross domestic product of data centers in Virginia is put at $9.1 billion, so a $1.9 billion tax break to get $9.1 billion in GDP seems a pretty good deal — but are there other figures we should look at? We come back to the Spider-Man maxim: With such a great amount of foregone tax revenue, there should be a great payoff — and ideally other ways to measure that beyond simply citing GDP, which may be an important number but isn’t one that most of us really grasp that well. Another good piece of advice, this one from the late astronomer Carl Sagan, when discussing reports of suspected extraterrestrial life: “Extraordinary claims require extraordinary evidence.” The forgone tax revenue on data centers is certainly extraordinary; is there extraordinary evidence that they’re worth it?
More to the point: Is there some way to determine whether these tax breaks for data centers are worth it before we make a mistake and inadvertently turn away the industry? There might be, and I’m about to look at that data, although first we must acknowledge that there are some data center critics who would be just fine turning the facilities away, no matter what the GDP is. Data centers burn a lot of energy, and figuring out how to supply that (and who should pay for it) is a problem that no one disputes. Even if we can establish that these tax incentives produce a wonderful rate of return, that still doesn’t address the energy question, although that’s for another day.
For our purposes today, I’m going to just focus on the economic impact of data centers, since that’s the narrow question before the General Assembly: Are these data center tax exemptions a good investment for Virginia? Put another way, does the tax break for data centers pay off better or worse than other tax breaks that Virginia offers?
If we ask those questions, then there are answers available. They can be found in two recent reports from the General Assembly’s investigative arm, the Joint Legislative Audit and Review Commission, that attempted to measure the effectiveness of various economic incentives. These findings (most from this 2025 report, some from this 2024 report) are more complicated than I would like, but we have to deal with the facts as they are, not how we prefer them to be. Let’s see what JLARC found.
Virginia’s economic incentives come in multiple forms: grants, tax credits and tax exemptions. Data centers fall under the latter, but the point is that by having three different species, it’s hard to compare apples to apples when what we have are apples, oranges and pears. And then there are some custom incentives that don’t fit in anywhere. Kiwis, if you will.
Nonetheless, the key point is that the tax exemption for data centers is now the biggest single economic incentive Virginia offers, and we ought to know whether it has a commensurate payoff.
JLARC looked at those five different categories: grants, tax credits, tax exemptions for industries other than data centers, tax exceptions for data centers and the inevitable “other.”
Let’s start with that first gray bar. It shows that the tax exemption for data centers creates more jobs, more gross domestic product and more personal income than any other incentive. That’s impressive, but since the data center tax exemptions add up to such a big number, these figures may not tell us much yet. What we need is something that can compare whether $1 of incentives for data centers produces more or less than $1 of incentives for something else.
For that, we need to go down to the second gray bar, which provides the best comparison across incentives. The report found that of those five categories, grants were the most economically productive. For every $1 million of grant funding, 137 jobs were created, along with $28.7 million of gross domestic product and $15.1 million of personal income.
However, the second most productive category was the tax exemption for data centers. For every $1 million, 84 jobs were created, along with $10.0 million of gross domestic product and $6.1 million of personal income. (That GDP is different from what’s been cited elsewhere; different measures at different times.)
That’s a lot of numbers, so let’s try to simplify. Not many of us understand GDP, but we all understand personal income, so let’s reduce this to simple investment terms. For every $1 million the state invested in grants, it got a 15.1 million return in personal income. Data centers had a return of 6.1-to-1. Nothing else was higher than 2.1-to-1. Is it wise to abandon something that has a 6.1-to-1 return on investment? That’s not a question I’ve heard asked, but there it is.
The jobs figure caught my eye: Data centers are generally not big job creators; their value (if you see value in them) is as revenue generators, although the jobs they create do tend to be higher-income jobs. Still, the data center tax exemption produced more jobs per $1 million than any other incentive except for grants. They were more than four times as productive, jobs-wise, as other types of tax exemptions, which maybe ought to raise questions about those tax exemptions, as well. While the data center exemptions total up a large amount, the others seem less useful on a proportional basis.
Now let’s move down to the third gray bar.
JLARC computed that for every $1 spent on the data center tax exemption, the state got back 48 cents in tax revenue generated in other ways. You can look at this as a loss — the state is still 52 cents in the hole. Or you can look at this and say the figure for foregone taxes is only about half as big as it appears because nearly half comes back to the state in other revenue — and creates all that personal income and gross domestic product in the meantime. Other tax exemptions produce just 17 cents in other revenue for each $1 the state invests; tax credits are the least productive of all. Perhaps what we really need is a larger discussion about all these incentives, but let’s move on.
JLARC also evaluated 75 specific programs across all those categories, scoring them by economic benefits and return in state revenue on a four-point scale. There were 19 programs that scored just one in each category — the lowest score available. These included the Green Job Tax Credit, the railroad rolling stock exemption, the ships and vessels exemption, and the spaceport users exemption. There were another 19 that scored four in each category — the highest score available. The data center tax exemption was one of those. It was the only tax exemption program to score that high; most of the other 19 programs with the highest-ranked scores were grants.
As part of these studies, JLARC turned to the Weldon Cooper Center for Public Service at the University of Virginia. Among other things, the Weldon Cooper Center surveyed economic development officials and asked them to score 33 different economic incentive programs. The highest score available was 4.0. The data center tax exemption scored 3.20, which ranked it 13th, just below the Virginia Economic Development Incentive Grant at 3.24 and just ahead of the Major Eligible Employer Grant at 3.12. The highest score of any incentive was 3.84 for the Virginia Jobs Investment Program; the lowest was 2.11 for the Coalfield Enhancement Tax Credit.
I am less enamored of this scorecard. This is a statewide survey, but some of these incentives only apply in certain places, such as that coalfield-related one. I’m not surprised it scored low since there are only a few counties where it would kick in. I’d be interested in seeing how economic development officials in coal-related counties scored it, but if officials on the Eastern Shore ranked it low, well, what would you expect? Likewise, until relatively recently, data centers were mostly confined to Northern Virginia. I’d be curious to see how officials in the counties that want data centers ranked this incentive. But we have what we have, and most of those surveyed said this was a useful tool. Consider that however you wish.
Ultimately, none of this quite answers the question of whether abolishing the tax exemption would drive data centers away, but it does suggest that the exemption works quite well in terms of generating economic returns. Caution dictates that we understand the consequences of our actions before we take them — that if we really want this data center revenue to keep coming, we ought to make sure that in our enthusiasm to grab the cash, we don’t accidentally chase it all away.
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