Virginia Lawmakers Strike Data Center Tax Deal After Budget Standoff
New electricity consumption tax expected to generate $1.2 billion over two years.
WASHINGTON, June 24, 2026 – Virginia lawmakers approved a new tax on data center electricity consumption Monday.
The measure was included in a roughly $75 billion biennial spending plan approved by the General Assembly, which retained a separate state tax break for data center operators. Under the compromise, operators will pay a new electricity consumption tax of $0.011 per kilowatt-hour, while retaining a sales-and-use tax exemption that Senate lawmakers had proposed ending in 2027, eight years before its scheduled expiration.
The dispute over the exemption emerged as one of the most contentious issues in this year's budget negotiations. The House and Senate convened in April, recessed to allow negotiators to resolve the prolonged deadlock, and returned June 22 to finalize the budget legislation.
The spending plan passed the Senate 23-16 and the House of Delegates 71-22.
The compromise included several new oversight provisions. Lawmakers directed a legislative panel to review the state's data center sales-and-use tax exemption. The 5.3 percent exemption on server equipment and software causes the state to lose out on nearly $2 billion annually.
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 also exempt from paying the state retail sales-and-use tax.
One of the most vocal proponents of ending the tax exemption, Virginia Senate President Louise Lucas, D-Portsmouth, said that the budget achieves balance between the Senate, House and governor on the Senate floor ahead of votes on Monday.
In an interview, Lucas said the cost of the exemption on computers and other equipment has grown dramatically since it was first adopted. What began as roughly $1.4 million in forgone state revenue has expanded to an estimated $1.9 billion annually, she said.
“If we allow this to continue until 2035, just imagine how much tax dollars the state will forgo,” Lucas said.
Under the compromise, state revenue from the new energy consumption tax is capped at $600 million annually, with collections above that refunded to operators on a pro rata basis.
The final budget also included provisions that require the Department of Environmental Quality to establish criteria for determining water scarcity areas to minimize data center impacts, and direct the State Corporation Commission to collect information on data centers' energy, water, and backup generator usage. It requires state regulators to develop standards addressing water use and noise impacts.
The bill now heads to Gov. Abigail Spanberger (D), who has a deadline of June 29 to sign it or exercise her line-item veto authority. In a statement, Spanberger said the compromise reflects input from her administration and provides a framework for future discussions about the data center industry's environmental and community impacts.
Stakeholders on both sides of the data center debate criticized the compromise.
The Data Center Coalition, representing industry, argued the new tax and regulatory requirements could weaken Virginia’s position as a destination for data center investment.
But, advocates argued the data center tax didn’t go far enough.
Environmental advocates said lawmakers failed to fully address concerns tied to the industry's rapid expansion, including impacts on energy and water resources. Several environmental provisions were removed early in budget negotiations.
Lawmakers have said this is an interim solution, which they plan to study further and come back with new proposals. Lucas said concerns raised by residents about the industry's growth are legitimate.
Virginia, which hosts roughly 35 percent of the country's data centers, is currently under extreme drought conditions, adding to concerns about the industry's water demands.
