Virginia budget imposes taxes 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.
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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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