Virginia’s General Assembly convened its dormant Joint Subcommittee on Tax Policy on Wednesday for the first time since 2024, with the aim of implementing a consumption tax on data center operators and studying current exemptions for data centers and their impacts on communities.
The revival of the subcommittee and its new charge was part of the compromise that brought warring factions together in the biennial budget battle earlier this year.
Wednesday’s meeting was largely informational and included presentations from the Economic Development Partnership Authority on the current data center tax exemption; the Department of Environmental Quality on data center-related air, water and noise regulations; and the State Corporation Commission on the proposed consumption tax.
The subcommittee must come up with recommendations before the 2027 legislative session begins in January.
How Virginia became the ‘data center capital of the world’
Senate President Pro Tempore Louise Lucas, vice chair of the subcommittee and chair of the Senate money committee, had been a strong proponent of ending data center tax exemptions in 2027, eight years earlier than their current expiration. She said that the centers needed to pay their fair share and cited concerns regarding their water and energy usage as well as possible impacts on the air quality.
In Virginia, data centers that meet certain requirements, including investing at least $150 million and creating at least 50 jobs — or, in economically distressed localities, $70 million and 10 jobs — are exempt from paying state retail sales and use tax on computers and other equipment.
Virginia has become known as the “data center capital of the world” since the tax exemptions were enacted in 2010, although the boom has been attributed not only to the incentives, but also to the proximity to a strong fiber network and access to land. A high concentration of the development initially took place in Northern Virginia, but data center developers have begun looking at more rural areas of the commonwealth for future projects.
Del. Luke Torian, D-Prince William County, who’s chair of the subcommittee and of the House of Delegates money committee, had held that Virginia must honor agreements that it signed with the tech companies — a position shared by the governor during budget negotiations earlier this year.
Lucas, D-Portsmouth, went on a listening tour with stops across the commonwealth to hear concerns from communities regarding data centers during budget negotiations earlier this year.
“Citizens everywhere are saying they feel like they’re being steamrolled by their local governing bodies and the state, that they’re being kept completely in the dark,” she said at the close of the subcommittee meeting Wednesday. “I don’t intend to back down on this issue, Mr. Chairman.”
The Data Center Coalition called Wednesday’s hearing a “valuable and important reminder of the thousands of good paying jobs, billions in tax revenue, and responsible operations that are associated with Virginia’s data center industry,” in a statement.
“As legislators heard, the state’s data center sales tax exemption program is similar to programs in a majority of other states and also other programs within Virginia, including the manufacturing sales tax exemption,” said Nicole Riley, director of Virginia government affairs for the coalition.
What is the ‘consumption tax’?
As outlined in the biennial budget, data center operators will be required to pay an energy consumption tax of 1.1 cents per kilowatt hour, in lieu of ending tax exemptions eight years early. The consumption tax is expected to generate up to $600 million per fiscal year, or $1.2 billion over the biennium.
The tax will expire after two years, barring an extension through a subsequent budget bill or other legislation.
“We’re looking for a path forward that satisfies some of the concerns, and that’s going to be difficult because I think we’ve got to be very careful,” said Del. Terry Austin, R-Botetourt County, a member of the subcommittee. “Economic development is a very, very, very competitive world.”
Data center operators will be required to pay the consumption tax monthly as a separate line item on the operator’s energy bill, said Todd Andrews, director of the Public Service Taxation Division of the State Corporation Commission during Wednesday’s meeting.
If more than $600 million is generated in a fiscal year, the excess tax revenue will be refunded to the data center operators.
Southside local government officials sound off on the meeting
Matt Rowe, director of economic development in Pittsylvania County, attended Wednesday’s meeting and said he was heartened by what he heard. A new AI data center project led by Stack Industries is planned for the Berry Hill megasite, which is jointly owned by the county and the city of Danville.
“I applauded the committee for taking the citizens’ concerns and the industry’s position and sitting down and having an open conversation about it,” Rowe said, and noted that the centers “can be good” for regions that want them.
He added that he believes that the data center industry is well regulated, based on the information presented to the subcommittee on Wednesday.
Ken Larking, Danville’s city manager, added that he believes each community and local government needs to determine the best use of their land. He said what he has heard regarding the Stack Industries project from Southside residents has been largely positive.
“We agree that the [Stack Industries] project is a good project for our community. We, like any economic development project, take the time to vet the prospect and make sure it will be a good fit,” he said.
Pittsylvania County Administrator Vincent Shorter concurred.
“People in the local community are best to determine the needs and wants and desires of the citizens of that community,” he said.
