Source: Erik Isakson/DigitalVision via Getty images.
Historically, states have implemented tax incentives to attract data center investments; however, the tide is beginning to shift. Many of the largest and fastest-growing markets are seeing untenable increases in demand alongside tactics by data center operators that have raised concerns of excessive and costly infrastructure buildouts. Rather than courting data center projects, several top markets are passing more stringent regulations on these large load customers, with the intent of balancing growth and ensuring that residential rate payers don’t shoulder the financial burden of infrastructure buildouts meant to primarily service data centers. This shift may lead to changes in the US data center landscape — whether greater expense to build, more moderated growth or further spreading out of development into areas previously overlooked.
The Take
In some markets across the US, it could be said that state tax incentives for data centers seem to have worked a little too well. As the pendulum swings the other way, these same markets are beginning to see amendments to state-level tax programs, as well as less data-center-friendly rules from utility companies. The most prevalent move is to require large load customers to pay for a minimum percentage of their request, regardless of how much power is used — and in Ohio, this type of plan seems to be having the desired effect. In its September filing, AEP Ohio noted that its interconnection pipeline for data centers had fallen by more than half. Other utilities have shifted to requiring the customer to foot the bill for the requisite electrical infrastructure, and perhaps the most extreme mandate is for new large loads to curtail some or all of their load from the grid at the behest of the utility. These next-generation guidelines are setting a new precedent in the industry and may lead to a greater expansion of large load projects into markets previously untapped by hyperscale-level developments, as companies look to dodge these new requirements.
Major Markets
Virginia
Northern Virginia is by far the largest North American market, taking up nearly 30% of net retail uninterruptible power supply (UPS). In 2012, Virginia lawmakers passed HB 216/SB 112, which addressed sales tax for data center operators and tenants. For enterprise facilities, data centers meeting a minimum computer equipment (e.g., servers, routers, connections and other hardware) investment of $75 million and creating at least 100 new jobs, at twice the local average wage, would qualify for sales tax exemption. More applicable to multi-tenant providers, the state included exemptions that allow data center owners/operators and tenants to combine investments and job counts to qualify. For both enterprise and colocation operators, the facility must meet a minimum investment of $150 million — including computer equipment as above, chillers and generators — and must employ at least 50 people at 150% the local average wage. The job requirement is reduced to 25 if the data center is in a location with an unemployment rate 150% higher than the state average. Both the operator and the tenants qualify if they collectively meet the requirements.
A 2023 update eases requirements for operators that develop in distressed localities where annual unemployment and poverty rates are greater than the state average. In these locations, the minimum investment is $70 million with 10 new jobs paying 1.5 times the local average. Counties in Virginia have also used local tax rates to encourage development within their jurisdictions. Loudoun County has a property tax rate for data centers set at $4.20 per $100 of assessed value, while Prince William County has a rate of $1.50 per $100 of assessed value. Recently, however, some counties have begun tightening the approval process for data centers. In March 2025, Fauquier County approved zoning changes that require any building or group of buildings over 50,000 square feet to undergo hearings and receive approval from the board of supervisors. Before the amendment, large buildings could be constructed without direct approval.
In September 2025, Dominion Energy Inc. proposed a new rate class for data centers with more stringent guidelines. The proposal would require high-use customers to sign a 14-year contract that will ensure payment for their proposed energy costs, even if they use less or if the data centers aren’t built. This ensures that data center operators will pay for proposed capacity needs, utility infrastructure and generation. The minimum demand charges proposed are 85% for transmission, 85% for distribution and 60% for generation. Hearings for the proposal have already begun; however, a decision is not expected until December 2025.
Texas
Combining Dallas, Houston and other Texas markets, the Lone Star state takes up just over 8% of the North American retail market in terms of power, and is expanding exponentially. Texas has set its sights on the hyperscalers and organizations building large, single-tenant facilities, including enterprise self-builds and leased data centers with a single enterprise tenant. Texas legislation (HB 1223, passed in 2013) qualifies only single-tenant data centers with at least 100,000 square feet in a single building for exemptions on sales and use tax, and specifically excludes multi-tenant environments.
Owners will need to invest a minimum of $200 million to qualify for 10 years of exemptions and $250 million for 15 years of exemptions. Additionally, the data center must create 20 jobs paying 120% of the average county wage. Texas Senate Bill 6, which was signed into law in June 2025, requires large load customers (75 MW-plus) to pay a $100,000 study fee and participate in paying for interconnection and grid costs, as well as other ancillary services tied to the facility. Utilities will also have to develop protocols for the installation of infrastructure prior to interconnection to enable remote disconnection during EEA3 events beginning in 2026. An EEA3 event stands for “energy emergency level 3,” the most critical level of grid emergency. The bill also mandates the development of a threshold for large load customers, with backup generation, to deploy backup systems or curtail load during emergency events with a notice of 24 hours.
Arizona
Arizona’s capital city of Phoenix is responsible for 6%-7% of the net power in the North American retail market. Arizona adopted the legislation HB 2616 in 2013, which allows owners, operators and qualified tenants to receive a tax exemption for 10 years for prime contracting transaction privilege tax, retail transaction tax, use tax and power consumption taxes. The legislation also includes incentives for owners or operators who redevelop existing structures using sustainable development practices, allowing the project to qualify for an increased tax benefit period of 20 years. To qualify, data center owner/operators must initiate a new investment of at least $50 million for urban locations and $25 million for rural locations. In March 2019, the Arizona State Senate passed Senate Bill 1366, which expands exemptions to apply to software.
Arizona is beginning to see increased antipathy toward data centers. In May, Phoenix Mayor Kate Gallego called for a complete end to tax incentives for data centers. Salt River Project, the utility that covers much of the Phoenix metro area, has recently amended E-67 pricing guidelines for projects over 20 MW. Going into effect in 2026, new large load customers will be billed for 80% of their requested demand, even if that amount is not used.
Oregon
The Portland metro, or more specifically, Hillsboro, is a prime location for data centers, taking up just over 3% of net UPS retail market share. Unlike markets with short-term incentive programs, Oregon’s lack of sales tax has ongoing value for data center developers, operators and customers stemming from the certainty of duration. Additionally, Oregon’s Enterprise Zone program allows for abatement of all local property taxes should a city, port, county or tribal government decide to sponsor it. Hillsboro sponsors such an enterprise zone, which allows for full property tax abatement if a business makes a minimum investment of $1 million in Hillsboro’s North Industrial Enterprise Zone Area or $100,000 in the Downtown and South Industrial Enterprise Zone Areas. The business must also meet additional criteria pertaining to the creation of new jobs, continued ownership of the assets in question, and increases in local procurement of goods and services.
In June 2025, data centers became a new customer class, and the cost to build out utility infrastructure was allocated to the developers. The bill also requires data center companies to enter into a minimum 10-year contract and a power purchase agreement to shield utilities from potential overbuilding.
Georgia
Atlanta is poised to move up in the rankings with a sizable pipeline of planned developments; the city takes up about 3% of the North American market’s net UPS. It wasn’t until 2017 that Georgia introduced data-center-specific legislation with HB 696, applicable to both single- and multi-tenant data centers built between July 1, 2018, and Dec. 31, 2028. This bill afforded a sales tax exemption on all data center equipment to qualifying data centers. The bill was amended again in 2022 to revise the tiered system minimum requirements and to extend the expiry date to 2033.
The state’s tiered system is based on the population of the county in which the data center is built, and thresholds must be met within seven years of the facility’s exemption start date. In counties with a population below 30,000, data center operators must create five quality jobs (jobs that pay at or above 110% of the county’s average wage) and invest a minimum of $25 million. For populations of 30,000 to 50,000, operators must create 10 quality jobs and invest $75 million. The minimums increase to 25 quality jobs and a capital expenditure of $250 million in counties with a population of more than 50,000. Sales and use tax exemptions apply to taxes at both the state and local levels.
Because of the growing queue of interconnection requests from data centers and the concerns over power requirements, the 2024 state legislature passed HB 1192, which would have paused the state’s incentives program and established a committee to evaluate the benefits and impacts of data centers. Ultimately, the governor of Georgia vetoed the bill, allowing incentives to continue. The Georgia Public Service Commission has also approved rules that require large load customers to pay transmission and distribution costs.
Ohio
The hyperscale and wholesale presence in Ohio is growing at an astounding pace, with the epicenter being an industrial park just outside Columbus in New Albany. The total data center power consumption in April of 2024 was about 600 MW, and AEP Ohio estimated that this would rise to over 5 GW by 2030 in central Ohio alone. Ohio data center operators can receive a complete or partial exemption from taxes on the sale, storage, use or other consumption of computer data center equipment. This also extends to charges for the delivery, installation or repair of computer data center equipment. Due to language in the code, behind-the-meter gas generation plants are eligible to receive these tax breaks as well, so long as they are located on the same property.
The growing capacity has led to significant pushback from utilities. AEP Ohio has imposed a moratorium on new data center agreements in central Ohio since 2023. There was an attempt early in 2025 to repeal the tax breaks, but this was vetoed by Governor Mike DeWine. In July 2025, new guidelines were passed to lift the moratorium. Under the new rules, large data centers must prove they are financially viable and able to meet the proposed requirements and pay an exit fee if the project is canceled or the company fails to meet obligations in the utility contract. It also requires new data center customers to pay at least 85% of the energy requested, even if they use less, to cover the cost of infrastructure to bring electricity to those facilities. These requirements are set to be in place for 12 years with a four-year ramp-up period.
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