Virginia budget imposes taxes on data centers for electrical consumption
The Virginia General Assembly approved a budget for the next two years that retains the sales tax exemption for data centers but adds an electricity consumption tax for the facilities.
The agreement ends months of negotiations over data centers. A government shutdown was imminent if lawmakers failed to reach an agreement by the July 1 deadline. Gov. Abigail Spanberger is expected to sign off on the budget agreement.
“There is a lot to be proud of in this budget,” Spanberger said on July 22. “Failing to pass a budget would have been unprecedented in the history of our Commonwealth – and it was never an option.”
The $205 million measure was passed on a 23-16 vote in the Senate and 71-22 in the House of Delegates.
The budget calls for a $0.011 fee per kilowatt-hour of electricity used by data centers, which is expected to raise $600 million a year in each of the next two fiscal years. Eliminating the sales tax exemption would have generated much more revenue for the state.
In addition, the measure does not include the environmental protections the House of Delegates had pushed for. It does, however, direct the Department of Environmental Quality to study the impact on groundwater of non-closed-loop data centers. Those facilities use millions of gallons of water a year.
Related story: General Assembly to consider comprehensive study on data centers
After July 1, 2027, data centers in the Eastern Groundwater Management Area will have to use air cooling systems, 100 percent recycled water and/or stormwater for cooling, or use a closed-loop system.
The DEQ is also directed to implement noise abatement regulations for data centers by the end of 2029. Facilities that violate the noise standard could be fined $32,500 a day.
A study group will revisit the sales and use tax exemption for data centers and submit recommendations in November.
Spanberger said the budget compromise on data centers “builds a strong foundation for further discussions about the future of this industry in Virginia on issues like environmental and community impact.”
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Among other provisions, the budget agreement:
- establishes a retail cannabis market to open July 1, 2027, with 350 retail licenses statewide to be granted on a phased-in basis;
- increases K-12 education by $1.4 billion, including a 4 percent raise for teachers for each of the next two years;
- increases the standard tax deduction from $8,750 to $9,200 for individuals and from $17,500 to $18,400 for joint filers;
- allocates $158.3 million for fiscal year 2027 and $245.1 million in 2028 for healthcare and social services to help offset federal funding shortfalls and comply with new federal mandates, including $150 million for households losing eligibility for the Affordable Care Act;
- directs $60 million for housing initiatives and $11.5 million for the Virginia Eviction Reduction Program;
- allocates $137.6 million for the state-subsidized child care program, which targets families earning 85 percent or less of the state median income; and.
- allocates $153 million to Metro.
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The state needs to kill the amortization approach to supporting the data center electricity and water.
Right now, the utility commission has to approve rate hikes applied to everyone to support expansion of power line infrastructure and construction of new power plants. This use tax doesn’t even come close to them paying their fair share. The upfront costs (rate hikes and bonds) are born by the existing customers.
The NoVa region is in a drought and we have the largest concentration of data centers. We don’t need to be sucking more water from the ground or the rivers to the detriment of the environment if it is not in support of actual people (not corporate profits).
TBH, Elon Musk and Jeff Bezos should just use their rockets, setup AI data centers on the dark side of the moon, perfect cooling conditions of -200. Run some power cables to the light side and put up a solar array (much higher efficiency without the atmosphere reducing intensity).
I LOVE corporate profits! The bigger the better! If you don’t like em, don’t buy what they’re selling or stop dealing with those that do. Simple. Can’t do either of those? Create your own company and give away what you produce.
But I like your dark side of the moon idea for data centers cause I hate looking at them. Just yesterday we were in Haymarket/Gainesville and then drove down Pageland Lane next to Manassas battlefield. What destruction in the former and potential in the latter. Should build centers in places like Annandale and Franconia and thus improve the scenery.