Issue Brief by Senior Policy Analyst, Cody Allen | callen@csg.org

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According to the Data Center Coalition, 11 of the 15 CSG South member states feature significant workforces, more than 36,000 direct and spillover employees – employed by data center industries. These include four states – Florida, Georgia, Texas, and Virginia – which are among the states with the largest data center workforce. To entice this burgeoning industry, more than 36 states offer some form of targeted data center tax exemption or incentive program. Unsurprisingly, this patchwork of tax relief and regulatory guidance has seen increased scrutiny as states weigh the economic benefits of these tech facilities against foregone tax revenues.

In the South, state minimum capital investment thresholds range from $25 million to $2 billion, depending upon the scale of the project. Further, nine states in the South require some form of job creation and/or wage requirements to qualify for a sales and use tax exemption on data center equipment. Notably, only one – North Carolina – also requires that these jobs provide health insurance benefits. Seven states provide a five-year window to meet these performance metrics as a condition of receiving or continuing to receive these incentives, while only three do not statutorily set a timeline.

There remains significant debate over the necessity of these targeted incentives to attract or retain data center jobs and investment. “While national discussions increasingly focus on artificial intelligence governance, this publication examines data centers strictly through the lens of infrastructure, taxation, and economic development—policy areas that remain firmly within state authority. Further, the order provides a carve out for state and local actions to establish reasonable permitting reforms which, cumulatively, should allow states to continue to lead the way on innovative policy solutions.”

As such, states may wish to embrace transparent evaluation measures – such as those in Oklahoma or Texas – to ensure the return-on-investment states receive from these tax breaks is positive overall.

Introduction

With more than 42 percent of all data centers nationwide and five of the top 15 states for data center employment located in the South, the United States data center market has a significant influence on the economic and fiscal environments of the CSG South region.¹² According to the Data Center Coalition, a data center trade association group, data centers range widely in terms of the exact number of typical “direct” jobs created, from dozens to hundreds.³ At the same time, some reports – including commissioned research from PwC – estimate that each data center job created leads to an average of six jobs in other segments of the economy.⁴

However, research suggests that frontloading of jobs and economic investment during the planning and construction phase means actual long-term jobs created, and economic investment often do not meet expectations.⁵ Nevertheless, data centers – like many tax-incentivized industries – face strong support and opposition as states seek to maintain responsible stewardship of limited funds, especially as many states consider reducing or eliminating individual income taxes, which may necessitate a more thorough review of tax credits or incentives for long-term sustainability and positive impact.⁶

Based on these employment and location factors, along with growing demand for capacity, data centers will continue to have an outsized impact on state and local economic, tax, and land use environments. As such, CSG South Issue Brief examines the state of laws and regulations governing the zoning and taxable basis of these centers to inform lawmakers as they explore this issue in the future.

FIGURE 1. Total Direct and Cross-State Spillover Data Center Employment (2023)

Allowable Uses and Zoning Restrictions

As a relatively new need of the economy, modern data centers do not neatly fit into traditional commercial or industrial land use categorization or zoning due to the unique balance between energy-use intensity and smaller on-site employment compared to similarly sized manufacturing or industrial facilities. Zoning and land use policies are often the exclusive purview of local government units (cities, towns, counties, etc.), with localities varying significantly in how they categorize data centers, server farms, or other similar entities within their existing regulatory framework.⁸ However, like many emerging or controversial issues, states have recently taken a more direct role in overseeing these facilities in relation to local land-use laws or zoning restrictions. Some states have enacted measures to preempt or otherwise direct any restrictions or zoning laws that impact data centers.⁹ These examples of preemption and updating of land-use codes by states in the South are illustrative of this recent trend. As a 2025 report from the Federal Reserve Bank of Minneapolis noted, states, from Hawaii to Maine, spent 2024 trying to balance respect for traditional local control with the need for states to adopt a more uniform regulatory landscape surrounding construction, zoning, and land-use decisions.¹⁰

Arkansas

In Arkansas, the Data Center Act of 2023 aimed to incentivize the attractiveness of the state to data centers – particularly those used for digital asset mining – by easing regulatory land-use restrictions. Specifically, it limited the ability of local governments to impose ordinances or zoning regulations upon digital asset mining enterprises, including limits on sound decibels if different from broad sound pollution standards and prohibitions on zoning or rezoning that only applied to digital asset mining data centers.¹¹

However, during the 2024 session, lawmakers repealed several provisions that potentially hamstrung localities from imposing zoning ordinances that targeted noise disturbances from data centers or cryptocurrency mining operations as well as those treating cryptocurrency mining facilities differently than more traditional data centers. Instead, it retained only the provision that prohibited local governments from rezoning an area where a digital asset mining data center is located without complying with all applicable state and local laws. It also added data centers and digital asset mining businesses to the list of entities prohibited from being owned by a foreign-party-controlled business, such as previously affected farmland.¹²

Louisiana

In Louisiana, statutory guidance permits the creation of an industrial area with the approval of at least 51 percent of the landowners, encompassing any parcels of land used solely for industrial purposes or primarily suited for industrial development. Industries located in such areas are required to provide certain infrastructure services, such as streets, water, sewage, garbage collection, lighting, and mutual fire protection in emergencies, which local governments commonly provide.¹³

During the 2025 legislative session, lawmakers enacted Senate Bill 79, which updated the statute governing industrial areas to include the construction and operation of data centers and commercial operations related directly to these centers. It also permits industrial areas – including those now designated for data center use – to contract with local governments or private entities to provide the required infrastructure services.¹⁴

Virginia

In Virginia, home to the largest number of data centers in the country, state lawmakers have continued to debate the necessity of establishing a statewide standard for land use rules for data centers, aiming to avoid the ongoing patchwork of conflicting local policies. Most recently, in 2025, a proposal – which was vetoed by the governor – would have established statewide rules requiring data center developers to report on the impacts to water, forests, agriculture, parks, and historic sites before zoning or special use permits could be approved.¹⁵ The governor raised concerns that this legislation represented a “one-size-fits-all” approach, which burdens local communities and adds unnecessary regulatory burdens to companies in the commonwealth.¹⁶ While there was no veto override from the lawmakers in 2025, similar proposals are likely to be debated in 2026.¹⁷

Comparing State Tax Incentives for Data Centers

As of 2025, at least 36 states – including nearly every state in the South – have one or more targeted incentives for data center or server farm development and site selection. These vary from property tax to sales and use tax abatements and may be based on economic impact, such as investment or job creation, as well as location selection. Every state, including the entire CSG South region, has a form of high-technology, industrial capacity, or high-paying jobs incentive program, which may also apply to data center-related industries.¹⁸

FIGURE 2. Comparison of CSG South Member State Timelines for Entities to Meet Incentive Requirements

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FIGURE 3. Comparison of CSG South Member State Data Center Minimum Investment Requirements

While there is much debate over the necessity of these incentives to attract data center jobs and investment, it is worth noting that one of the leading states for data center employment, Florida, has reported that no data center project has claimed or even applied for its sales and use tax exemptions.¹⁹ Likewise, in Oklahoma, its longstanding sales and use tax exemption has seen few takers as data centers eschew these targeted incentives for broader and non-industry specific job and location programs.²⁰ This may call into question proponents’ arguments that these targeted incentives are necessary, and present the possibility that broader economic factors may have different demands than a niche, industry-specific incentive package. However, proponents may point to Virginia’s nation-leading environment for data center development as a model for why extensive tax exemptions are necessary for economic growth.²¹ This review of state data center-specific incentives, while not exhaustive, may help policymakers better weigh the necessity and burdens of these types of programs and the cost-benefit to states.

FIGURE 4. Comparison of CSG South Member State Data Center Incentive Workforce-Related Requirements

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FIGURE 5. Comparison of CSG South Member State Data Center Incentive Wage-Related Requirements

Alabama

During the 2012 legislative session, lawmakers enacted the Alabama Data Processing Center Economic Incentive Enhancement Act to attract large data center projects to the Yellowhammer State. The act updated existing statutory sales, use, and property tax abatements to offer more explicit incentives to data center companies by establishing processes for increasing these abatements upon meeting certain thresholds. Specifically, the tax abatement may be extended from 10 to 20 years if the aggregate capital investment in a data center exceeds $200 million during the 10 years following project completion.²²

Additionally, the abatement term can be extended to 30 years if the aggregate capital investment made after completion exceeds $400 million over 20 years. This abatement applies to all state sales/use taxes as well as local non-educational sales and use taxes, plus all noneducational property taxes on computers, software, and other property acquired after the data center project is completed but before the end of the applicable abatement period.²³ The abatement update also reduced the number of new jobs required to qualify as an eligible data center project from 50 to 20. However, these jobs must have an average annual total compensation, including benefits, of at least $40,000.²⁴

Arkansas

During the 2023 session, lawmakers enacted a measure to create a series of sales and use tax exemptions designed explicitly for data centers in Arkansas. Specifically, these were intended to exempt data center equipment, eligible data center costs, certain services provided to data centers, and electricity used by data centers from gross receipts and compensating use taxes. The legislation defined data center equipment broadly, encompassing various components and services essential for data center operations, including servers, cooling systems, and security systems. It also outlined eligible data center costs as expenditures related to the development and operation of a data center, such as land, buildings, and equipment acquisition.²⁵

To be eligible, a qualified data center is defined as a facility that meets specific investment and compensation criteria, including a minimum investment of $500 million investment within five years of the issuance of the certificate of occupancy and providing an annual aggregated compensation of at least $1 million to employees within the state over two years. Data center firms must apply to the Arkansas Economic Development Commission to receive these tax exemptions, with eligibility contingent upon meeting the specified investment and compensation thresholds within five years of the commencement of construction and upon receiving a positive cost-benefit analysis from the department.²⁶

During the 2025 session, House Bill 1444 (2025) revised the minimum investment and aggregated compensation thresholds, as well as added a new eligibility category for “large” data centers. Specifically, the minimum investment was reduced to $100 million for qualified data center projects within five years of occupancy certification and $2 billion within 10 years for the newly created category of large data centers.²⁷ It also amended the aggregated compensation to now include both direct and indirect compensation,* as well as payments made by contractors of the qualified data center to individuals performing services within the state over two years, as part of the aggregation requirement.

For the newly designated large-scale data centers, the total compensation over two years must equal at least $3 million. However, the legislation also added a new provision that disqualified data center projects whose primary operation involves engaging in cryptocurrency mining on a distributed ledger at the facility.²⁸

Florida

Lawmakers created the state’s first targeted incentive for data centers during the 2017 legislative session. Beginning with data center projects constructed on or after July 1, 2017, the law exempts data centers from sales and use taxes for the purchase of infrastructure, equipment, personal property, and electricity.²⁹ To qualify, the data center company must invest at least $150 million cumulatively in the acquisition, construction, installation, equipment, or expansion of the data center property. Notably, the costs of purchasing an existing property that operates as a data center do not qualify for inclusion toward the $150 million investment criteria. The cumulative investment threshold must be met within five years of the project’s initial groundbreaking. It also includes a requirement that the data center must have at least 100 megawatts of total power capacity and at least 1 megawatt of power capacity assigned to each owner or tenant of the facility.³⁰

The initial sales and use tax exemption is temporary, pending the Florida Department of Revenue’s review of eligibility. Upon the satisfactory completion of the evaluation, a permanent exemption is issued, which is then subject to a departmental review every five years. If, at any point, the Florida Department of Revenue determines that the data center operator does not meet the exemption criteria, the exempt tax balance is due immediately, and the department may assess it at any time within six years following the purchase as part of its claw-back provision.³¹ In 2021, lawmakers extended the sales tax exemption through June 30, 2027.³² It was subsequently extended again during the 2025 legislative session to now sunset after June 30, 2037.³³

When initially enacted, the House Ways and Means Committee staff projected that the data centers’ sales tax exemption would result in a total recurring annual loss of $2.6 million in state and local revenues.³⁴ The 2021 update noted that no entities had yet qualified for the data center sales and use tax exemption and, as such, downgraded the estimated recurring annual revenue loss to $1.4 million.³⁵ In its analysis for the 2025 update, the state noted that as of March 31, 2025, no data centers in the state had applied for or received the qualifying sales tax exemption. Therefore, any potential projected revenue impact was deemed indeterminable.³⁶

*Indirect compensation, as included in the bill, refers to compensation paid by any contractors of the qualifying data center to other individuals or entities performing services within Arkansas.

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Georgia

In Georgia, qualifying entities may be eligible for the high-technology data center equipment sales and use tax exemption if they meet a variable minimum investment threshold. In addition to a claw back provision requiring the full payment of all exempted taxes within 90 days’ notice, the State Revenue Commissioner may also require the data center operator to deposit a surety bond – up to $20 million – which would also be forfeit and used to cover all back owed sales and use taxes in the event the operator fails to meet the minimum investment threshold within the requisite seven-year period.³⁷ This exemption was created in 2018 through the passage of House Bill 696, which initially established a 10-year period for high-technology data centers to qualify for and claim the exemption, as well as to begin the process of meeting the investment threshold.³⁸ In 2022, lawmakers revised the quality jobs requirements for high-technology data centers to qualify for the exemption. They reduced the qualifying aggregate investment threshold from a minimum of $100 million to a minimum of $25 million. Additionally, they extended the statutory exemption, which was set to expire on January 1, 2032, unless the Legislature extended it.³⁹

Notably, the Peach State determines its aggregated investment threshold for qualifying data centers based on the location of the center within one of Georgia’s 159 counties. These thresholds range from $25 million (in 99 counties, or 62.3 percent of the state) to $75 million (in 19 counties, or just under 12 percent of the state) to $250 million (in 41 counties, or 25.8 percent of the state).⁴⁰ The county threshold is based on U.S. Census figures on each county’s population as of the most recent census. It requires an aggregate expenditure of at least $25 million over a consecutive seven-year period spent on the design and construction of the center and the equipment used or incorporated in the operation of the data center.⁴¹

TABLE 1. Georgia High-Technology Data Center Minimum Investment Thresholds

County Population	Quality Jobs Created	Minimum Investment
50,001 or more	25	$250 million
30,001 to 50,000	10	$75 million
30,000 or less	5	$25 million

These data center exemptions utilize the same “quality jobs” designation that the state uses for other investment-based incentives. Specifically, the state code defines these jobs as in-state employment opportunities with a regular workweek of 30 hours or more that pay 110 percent or more of the average wage in the county where they are located. Additionally, these quality jobs cannot already be located in the state or have been previously located there.⁴³

In January 2023, the Georgia Department of Audits and Accounts published a report co-authored by the University of Georgia, analyzing the impact of the high-technology data center sales tax exemption for Fiscal Year 2022. Notably, the researchers reported that, due to the limited number of claimants, actual data could not be collected on the amount of foregone revenue or the specific number of jobs created, owing to concerns about privacy. As such, researchers assumed that only 10 percent of the economic activity associated with data centers would have occurred had the credit not been implemented.⁴⁴

FIGURE 6. Estimated Total Fiscal Impact of Georgia’s High-Tech Data Center Tax Exemption (FY2018-2030)

However, the report estimated that the total amount of foregone revenue in 2018 was approximately $8.2 million. By the time the exemption is set to expire in 2030, the forgone sales tax levy is expected to rise to $80.1 million. Despite these estimates, when considering the return on investment (ROI) to the state from enhanced economic activity, the auditors concluded that every $1 of foregone tax revenue due to the exemption results in a value-added impact of slightly less than $11. The authors highlight that these conclusions are based on estimates from a 2019 Virginia report and anecdotal conversations with data center consultants; it is estimated that 90 percent of economic activity from data centers would not be present in the state without the tax exemption. An alternative use calculation, wherein the foregone revenue is instead reinvested in the state for education and other social spending, yields a reduced ROI to the state of $1.33 for each $1 of foregone revenue.⁴⁶

While the audit estimated a negligible impact on foregone state tax revenues when compared to economic benefits, the lack of detailed and accurate data on actual expenditures and foregone revenues means these conclusions should be considered with caution. This is especially important as state leaders have turned a renewed eye towards reducing incentives and exemptions for targeted industries to instead focus on widespread income tax reductions – a tricky balancing act.⁴⁷

Recognizing these difficulties, during the 2025 session, a proposal passed by lawmakers would have temporarily paused the sales tax exemption for data centers for two years, starting on July 1, 2025. However, the governor ultimately vetoed the pause, and lawmakers were unable to attempt an override.⁴⁸

Kentucky

A relative newcomer to the incentives-laden field for attracting data centers, lawmakers in the Bluegrass State passed their first piece of legislation aimed at attracting data centers to Jefferson County – home of Louisville and the most heavily populated area of the state – during the 2024 legislative session. Like other states, these sales and use tax exemptions apply to the purchase of equipment for the construction, development, and operation of the center. Data center projects primarily operating in the commercial cryptocurrency mining business are ineligible for the exemption.⁴⁹

The sales and use tax exemption does not apply to construction equipment or building materials permanently incorporated into the property; however, it does include computer equipment and software used for the project. More recently, during the 2025 session, legislative leadership prioritized an amendment that expanded these tax breaks statewide.⁵⁰

Within five years of preliminary approval, the data center operator, owner, or colocation tenant must meet a minimum capital investment of:

• $450 million in counties with a population of 100,000 or more;
  
• $100 million in counties with a population between 50,000 and 100,000; and
  
• $25 million in counties with a population less than 50,000.

Additionally, the project organizer must meet a capital investment threshold of at least $150 million, regardless of the geographical location.⁵¹ A project organizer is defined in the law as an entity that solely provides infrastructure for a qualifying data center project and enters into a separate agreement with another entity for the purchase, use, or operation of the data center.⁵²

The incentives continue for 15 years for data center project organizers. For other non-project organizers operating the centers, the term may be extended for a period of up to 50 years for data center projects with a capital investment of $450 million or more, and up to 25 years for qualified projects with an investment of less than $450 million.⁵³ Additionally, the Kentucky Economic Development Finance Authority may pursue all available legal recourse, as well as issue a notice of assessment, if the data center operator, owner, or project organizer fails to meet the capital investment terms. However, this provision does not have the explicit claw-back terms that are present in other states’ statutes.⁵⁴

Louisiana

During the 2024 legislative session, lawmakers enacted House Bill 827 (2024), which provides a sales and use tax rebate for up to 20 years for data center projects completed before July 1, 2029, with the option to extend for an additional 10 years if all requirements are met. To qualify, entities must be certified by the state Department of Economic Development as an approved data center facility to qualify for the sales and use tax rebate on eligible data center equipment, as well as expenditures for the development, acquisition, construction, lease, repair, refurbishment, expansion, and renovation of a qualifying facility.⁵⁵

As part of the approval process, the department must receive a sworn statement from the data center operator that the project will create at least 50 new, direct, and permanent jobs in the state and that at least $200 million in new capital investments will be spent between July 1, 2024, and July 1, 2029. Additionally, the statute permits the state to recapture all rebates if the facility and its operators fail to meet the required thresholds in investment and spending, or use the sales and use tax rebates improperly.⁵⁶ While no exact fiscal impact could be determined by legislative staff, the fiscal note did warn lawmakers that the minimum 20-year term would expose the state to unconstrained commitments, which would negatively impact tax revenues over the rebate period.⁵⁷

Recognizing the potential negative fiscal impacts, during the third extraordinary session of 2024, lawmakers enacted a measure that repealed the rebate model and replaced it with a more traditional exemption model, including those governing data center sales and use tax rebates. Specifically, House Bill 10 (3rd Extra. 2024) changed the sales and use tax rebate system for data center purchases to the much more commonly used sales and use tax exemption.⁵⁸

Mississippi

In 2010, Mississippi lawmakers established a sales and use tax exemption for business enterprises owning or operating data center facilities in 2010. Initially, to qualify, these centers had to have a minimum capital investment in the state of $50 million with a minimum of 50 new full-time jobs created that paid at least 150 percent of the state average wage. These centers were exempted from any sales and use tax on purchases, including building materials and equipment for the initial construction and development of the data center, as well as the purchases of hardware, software, or other necessary operational equipment.⁵⁹

During the 2019 session, lawmakers enacted a measure that lowered the minimum investment threshold to $20 million, increased the minimum number of new full-time jobs created to 20, and required wages to be 120 percent of the average annual state wage. It also added to the tax exemption all state income and franchise taxes on the income earned by the business, as well as on the value of capital used or invested by the business. It also added a term limited to 10 years for these exemptions.⁶⁰ However, these tax breaks are set to expire – unless reenacted by the legislature – on January 1, 2028.⁶¹ The statute does permit the Mississippi Development Authority to recapture all or a portion of the taxes owed in the event the data center operator fails to meet the required terms of the incentive package.⁶²

Missouri

In the Show-Me State, data centers operating in the data processing, hosting, internet publishing or broadcasting, and web search portal spaces are eligible for a sales and use tax exemption. These tax breaks, first enacted in 2015, cover eligible purchases of machinery, equipment, computer hardware or software, electrical energy, gas, water, telecommunications, and internet services for new data center facilities. It also exempts tangible personal property purchased for the construction of new facilities. These exemptions are for both state and local sales tax levies.

To qualify, the state Department of Economic Development must certify that new and existing centers meet the required investment and workforce criteria, as well as entering an agreement with the entity applying for the exemption. These qualifying data centers must meet the investment and workforce requirements within three years for new constructions or two years for existing data center projects.⁶³

Notably, the statute requires that no exemption provided to data center entities may exceed the projected net fiscal benefit to the state over the exemption period, as determined by the state’s Department of Economic Development, utilizing economic modeling software. In the event of noncompliance, the department is authorized to use the terms of the agreement to recapture any tax incentives from which the company has previously benefited.

TABLE 2. Comparison of Tax Incentive Requirements for Types of Data Center Projects

Type of Construction	Minimum Investment	Minimum New Jobs	Minimum Pay (County Average)	Maximum Exemption Term
New	$25 million	10	150%	15 years
Existing	$5 million	5	150%	10 years

Notably, the statute requires that no exemption provided to data center entities may exceed the projected net fiscal benefit to the state over the exemption period, as determined by the state’s Department of Economic Development, utilizing economic modeling software. In the event of noncompliance, the department is authorized to use the terms of the agreement to recapture any tax incentives from which the company has previously benefited.⁶⁴

North Carolina

The Tar-Heel State provides three separate sales and use tax exemptions for data center-related purchases. These exemptions apply to 1) electricity and support equipment purchased for a qualifying data center, 2) electricity and specific business property purchased for an eligible internet data center, and 3) computer software purchases at a data center.⁶⁵

The statute defines a data center as a facility that provides infrastructure for hosting or processing data services, with concurrently maintained power and cooling systems. However, the specific thresholds vary based on the type of data center facility exemption being sought from the North Carolina Department of Commerce.⁶⁶

Additionally, the state Secretary of Commerce has oversight over whether a data center is qualified to receive these exemptions. Specifically, for data centers, the secretary must determine that the minimum investment of private funds has or will be financed in the facility by its owners, operators, users, and/or tenants within five years of the first tangible or real property investment in the facility is at least $75 million and that the facility meets the requisite county standard wage and health insurance benefits mandates.⁶⁷

Comparatively, for internet data centers, the minimum investment required is at least $250 million in private funds within five years of the facility’s construction commencement. It must also be primarily used for a business engaged in software publishing operating as a structure or series of structures located on a single parcel of land or two contiguous parcels owned by the center operator. These parcels must be located in a Tier 1 or Tier 2 county, which are defined by their average unemployment rate, median household income, population growth rate, and adjusted per capita property tax base, which comprises a tiered score for the county’s economic distress level from Tier 1, or most distressed, to Tier 3, or least distressed.⁶⁸

Any data center operator – regardless of type – who purchases computer software for use within the center is exempt from sales tax.⁶⁹ Failure to meet the required investment or other standards triggers an assessment of past due taxes and interest. This claw-back provision requires payment in full within 30 days of the claimant being notified by the state of their forfeiture of the exemption.⁷⁰

Oklahoma

The Sooner State’s approach to incentivizing data centers is more unique than the targeted and explicit data center incentives seen in the states mentioned above, which focused more on sales and use tax exemptions on the purchases of equipment and machinery used by businesses engaged in computer services and data processing, such as traditional data centers or server farms.⁷¹ Instead of requiring specific investment, worker, or wage thresholds to be met, the statute requires a certain percentage of revenue from sales to be earned from out-of-state purchasers. More specifically, eligible beneficiaries must meet the following out-of-state sales thresholds:

• 50 percent of annual gross revenues from the sale of goods or services to out-of-state buyers for entities engaged in prepackaged software or computer-integrated systems design fields; or
  
• 80 percent of annual gross revenues from the sale of goods or services to out-of-state buyers for entities engaged in computer processing, data preparation, and data processing services.⁷²,⁷³

The state Tax Commission must approve the exemption annually, and, for eligibility purchases, the businesses applying for the sales and use tax exemption may count sales to the federal government, regardless of the purchasing agency, as out-of-state customers.⁷⁴

However, like in Florida, a review of the State of Oklahoma Incentive Evaluation Commission from November 17, 2023, found that, for the preceding five-year period, no entities had claimed the exemption, and its use had historically been low to nonexistent. Despite this, the commission recommended retaining the incentive in statute, given the continuing growth of data centers nationwide and the potential attraction the sales tax exemption could provide for future businesses looking to locate in or relocate to the state.⁷⁵

South Carolina

In South Carolina, lawmakers enacted House Bill 3720 during the 2012 session to create a data center sales and use tax exemption for select purchases, to incentivize relocation, expansion, and development of data centers and server farms in the state. The incentives are set to expire on December 31, 2031, unless renewed by the legislature. However, these exemptions last for 10 years, allowing an owner approved for the tax exemption to maintain it through 2041 in the law’s current form.⁷⁶

To be eligible, a data center must provide infrastructure for hosting or data processing services with power and cooling systems that are concurrently maintainable. Qualifying purchases include original or replacement computers, computing equipment, hardware, or software for use within the data center, as well as electricity used by the center and any tenants or other users operating within or out of the facility.⁷⁷

A taxpaying entity seeking to claim the exemption must meet differing investment thresholds over a five-year period to qualify. Specifically, a single owner must invest at least $50 million in real and/or personal property, while a data center with two or more investors must spend an aggregate of $75 million. Additionally, the qualifying data center must create at least 25 full-time new jobs – maintained for three consecutive years – at an average wage of at least 150 percent or more of the per capita state or county income, whichever is lower.⁷⁸

While lacking explicit claw-back terms or language, the measure does not state that if the investment and other terms are not met, the data center owner is responsible for all sales and use taxes owed. Additionally, if the facility owner fails to maintain any portion of the three-year job requirement, it may only claim an exemption on a portion of the electricity purchased equal to the actual number of jobs created and kept divided by 25.⁷⁹

Tennessee

Tennessee’s only targeted data center incentive, enacted in 2007 (Senate Bill 2223), required $250 million in investment and the creation of 25 new jobs over three years to qualify for machinery exemptions and a reduced 1.5 percent electricity tax rate.⁸⁰

Amended by lawmakers in 2016 through the passage of Senate Bill 2537, the exemption permits qualified data centers – those with a capital investment of at least $100 million over three years and creating at least 15 new jobs – to receive a lower tax burden on their electrical needs. Specifically, the law assesses a 1.5 percent sales tax on electricity sold or used by a qualified facility and does not levy any tax on purchases related to cooling equipment or backup power generation.⁸¹,⁸²

According to the accompanying fiscal note, these new reduced requirements are projected to result in an annual decrease in state tax revenue of $4.1 million. This estimate, using Tennessee Department of Revenue data on current data center-related equipment expenditures, calculated that approximately $40 million in total taxable sales were exempt from state sales and use taxes.⁸³ This estimated figure as to the tax base of data center purchasers in the Volunteer State may prove useful as other states consider the gross amount of sales impacted by incentives or exemptions.

Texas

Initially, lawmakers passed House Bill 1223 (2013) to establish a sales and use tax exemption on certain tangible personal property and utility purchases for qualifying data center projects. In its original form, the law defined a qualifying data center as a facility that utilizes at least 100,000 square feet of space within a single building or series of buildings across one or more contiguous parcels of land. Additionally, it must create at least 20 full-time, permanent jobs that pay at least 120 percent of the weekly average wage in the facility’s county and feature a minimum capital investment of at least $200 million over a five-year period beginning from the date the state comptroller certifies the data center’s tax-exempt status.⁸⁴

An amendment in 2015 expanded the exemptions to include “large” data center projects which it defined as those with at least 250,000 square feet of space in a single building or series of structures which is constructed, designed, and used to primarily house servers and related equipment for the processing, storage, and/or distribution of electronic data – but not primarily used by a telecommunications provider or for telecommunications services.⁸⁵

Additionally, to qualify, the project must certify that:

• At least 40 full-time, permanent jobs paying at least 120 percent of the county’s average weekly wage will be created and maintained;
  
• At least $500 million will be financed in capital investments over a five-year period; and
  
• The owner/operator of the center will contract for at least 20 megawatts of transmission capacity for the facility’s operation.⁸⁶

The same 2015 legislation allowed the Lone Star State to permit an exemption from state sales tax for the purchase of gas and electricity if used directly by a data center project certified by the state comptroller for the processing, storage, and distribution of data.⁸⁷ Statute also notes that, if a qualifying data center or large center project fails to meet any of the required investment, workforce, transmission, or other requirements, the holder of the exemption will be responsible for all past due assessments, interest, and fees on all previously exempted purchases.⁸⁸,⁸⁹

Virginia

As the data center capital of the country, home to more than 16 percent of all data center facilities in the U.S., Virginia has a long history of offering incentives and reconsidering how or when to attract data centers to invest in the commonwealth.⁹¹,⁹² Since fiscal year 2021, more than half (53 percent) of Virginia’s more than $5.2 billion spent on economic development incentives were allocated to the data center tax exemption – approximately $2.7 billion.⁹³ This history, both good and bad, has led to a significant legislative focus as lawmakers continually revisit and reconsider the shape and function of their data center exemptions.

FIGURE 7. Virginia Economic Development Incentives Spending (FY 2015 to FY 2024)†

The initial exemption enacted by lawmakers in 2008 was limited to those entities that entered into an economic development agreement with the Virginia Economic Development Partnership Authority during calendar year 2008. Data center owners and operators who meet specific requirements may be eligible for a sales and use tax exemption on computer equipment purchases or leases used within data centers for the processing, storage, retrieval, or communication of data. Specifically, the facility must be operating in a locality with an unemployment rate greater than 4.9 percent (as of November 2007), feature an investment in this exempt property of at least $75 million, and create at least 100 jobs paying twice the prevailing wage of that local area.⁹⁴

†Despite making up the majority of all state spending on economic development incentives since fiscal year 2015, JLARC notes that the more than $2.7 billion in data center exemption spending is only calculated from fiscal year 2021 onwards.

TABLE 3. Timeline of Virginia’s Data Center Tax Exemption Legislation

Legislation (Year)	Exempt Items	Location Requirement	Investment Requirement	Workforce Requirement
HB 1388 (2008)	Computer Equipment	Unemployment rate greater than 4.9%	$75 million	100 new jobs (at 2× the local wage)
SB 130 (2010)	Computer Equipment and Software	–	$150 million	50 new jobs (at 1.5× the local wage)
HB 2273 (1st Ex. 2021)	Computer Equipment and Software	Local unemployment and poverty rates greater than statewide rates	$70 million	10 new jobs (at 1.5× the local wage)
SB 1522 (2023)‡	Computer Equipment and Software	–	$35 billion – $100 billion	1,000 – 2,500 new jobs (100 at 1.5× the state average wage)

In 2010, lawmakers expanded the economic development incentives offered to data centers by allowing the owners to claim an exemption from July 1, 2010, to June 30, 2035, for computer equipment and software purchased or leased for use in processing, storing, and communicating data at a data center facility.⁹⁵ To qualify, the facility owner or operator must invest new capital of at least $150 million on or after January 1, 2009, and create at least 50 new jobs, which may include those from tenants of the facility. These newly created jobs must pay at least one and a half times the locality’s average prevailing wage.⁹⁶ However, the number of newly created jobs may be reduced to 10, and the capital investment may be lowered to $70 million if, with the state’s agreement, the owner or operator claiming the credits locates the facility in a distressed locality. A distressed locality must have an annual unemployment rate and poverty rate greater than the statewide average as of calendar year 2019. This provision changed on July 1, 2023, to base unemployment and poverty statistics on the most recent calendar year data available. The statute permits the data center owner and operator to collectively qualify for these exemption thresholds with tenants or collocated businesses.⁹⁷

Once the exemption is approved, the claimant must annually file a report updating the state economic development authority on the data center owner’s, operator’s, and tenants’ capital investments, employment and wage levels, qualifying expenses, tax benefits, and any other requested information.⁹⁸ The memorandums entered into between the data center tax exemption claimant and the state economic development authority must include a claw-back provision as well as terms for penalties, interest, and repayment terms if the facility fails to meet the minimum investment or job creation requirements for the tax relief.⁹⁹

State law also permits the sales and use tax exemption on the purchase or lease of computer equipment and software to be extended to colocation tenants, as well as beyond the current sunset of July 1, 2035, provided that certain extended dates meet the following requirements.¹⁰⁰,¹⁰¹ These include:

• A capital investment of at least $35 billion in facilities creating at least 1,000 new full-time jobs with 100 jobs paying at least one and a half times the prevailing average state wage on or after January 1, 2023, but prior to July 1, 2035; or
  
• A capital investment of at least $100 million in facilities creating at least 2,500 new full-time jobs, with at least 100 of such jobs paying one and a half times the prevailing average state wage.

Data centers that meet these thresholds will be eligible for a tax exemption through June 30, 2040, and June 30, 2050, respectively.¹⁰²

‡ The 2023 legislation added new investment and job creation thresholds which supplement the existing incentives by allowing for entities that meet these higher standards to extend the tax exemption an additional 5 to 15 years beyond the statutory sunset.

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Conclusion

Despite establishing a lucrative tax exemption program in 2017 and renewing it annually, a 2025 analysis from legislative committee staff in Florida, as well as an incentives evaluation commission staff in Oklahoma, cast aspersions on whether targeted data center incentives were not only beneficial but also necessary.104 These reports argued that existing, broad-based, high-paying job, or distressed location-based incentives, which applied to multiple industries, likely offered more benefits to entities – including data centers or server farms – looking to relocate to the state.105

Alternatively, a study from the University of Georgia, published by the Georgia Department of Audits and Accounts, reported that the Peach State’s incentives likely contributed to the rapid growth of the data center economy in the state. However, the same study noted that the highest percentage of investment, job creation, and economic impact came from the building and development of facilities during the construction phase, with the operational phase necessitating significantly lower staffing and equipment investment.106

This trend of frontloaded impact necessitates the need for accurate, regularly reported metrics so states can ensure the long-term incentives and foregone revenue match the total economic impact of data center projects. However, it is essential to note that most states do not require detailed reporting on the recipients of these or other incentives, which can make it challenging for lawmakers or the general public to assess the impact of these economic incentive projects.107 To that end, lawmakers may wish to consider following Texas’ model featuring the required disclosure and transparency of incentives by the state comptroller, or Virginia’s statutory reporting requirement.108,109 “These reporting requirements relate solely to fiscal performance and incentive compliance, not to AI models, algorithms, or data processing activities.”

As states continue to compete for economic gains, tracking key indicators and economic “wins“ will become increasingly important.

FIGURE 8. Data Center Industry Direct Employment by State in 2022

End Notes

1. “Economic Contributions of Data Centers in the United States,” PwC, February 2025, https://static1.squarespace.com/static/63a4849eab1c756a1d3e97b1/t/67b38f78e9cf125daf756112/1739820925392/Data+Center+Economic+Contribution+Study+2025_Final.pdf.
2. “USA Data Centers,” Data Center Map (2025), https://www.datacentermap.com/usa.
3. “Frequently Asked Questions about the Data Center Industry,” Data Center Coalition, 2025, https://dcc.silkstart.com/cpages/faq.
4. “Economic Contributions of Data Centers in the United States,” PwC.
5. Kasia Tarczynska, “Cloudy Data, Costly Deals: How Poorly States Disclose Data Center Subsidies,” Good Jobs First, November 2025, https://goodjobsfirst.org/wp-content/uploads/2025/11/Cloudy-Data-Costly-Deals-How-Poorly-States-Disclose-Data-Center-Subsidies.pdf.
6. 6 David Wickert, “Georgia lawmakers debate eliminating state income tax,” Atlanta Journal Constitution, November 18, 2025, https://www.ajc.com/politics/2025/11/lawmakers-debate-eliminating-georgias-income-tax.
7. “Economic Contributions of Data Centers in the United States,” PwC.
8. “Zoning and Land Use Considerations for Data Centers,” Lightbox Real Estate, April 10, 2025, https://www.lightboxre.com/insight/zoning-and-land-use-considerations-for-data-centers.
9. Madyson Fitzgerald, “Data center growth drives locals to fight for more say,” Stateline, November 17, 2025, https://stateline.org/2025/11/17/data-center-growth-drives-locals-to-fight-for-more-say.
10. Ben Horowitz and Christina Spicher, “States made big and little changes to land use laws in 2024,” Federal Reserve Bank of Minneapolis, February 19, 2025, https://www.minneapolisfed.org/article/2025/states-made-big-and-little-changes-to-land-use-laws-in-2024.
11. Arkansas House Bill 1799 (2023), https://arkleg.state.ar.us/Bills/Detail?id=hb1799&ddBienniumSession=2023%2F2023R.
12. Ark. Senate Bill 79 (2024), https://www.arkleg.state.ar.us/Bills/Detail?ddBienniumSession=2023%2F2024F&measureno=SB79.
13. Louisiana Revised Statutes § 51:1202, https://law.justia.com/codes/louisiana/revised-statutes/title-51/rs-51-1202.
14. La. Senate Bill 79 (2025), https://www.legis.la.gov/legis/ViewDocument.aspx?d=1422218.
15. Virginia House Bill 1601 (2025), https://lis.virginia.gov/bill-details/20251/HB1601.
16. “Governor’s Veto Explanation – HB1601,” Governor of Virginia, May 2, 2025, https://lis.virginia.gov/bill-details/20251/HB1601/text/HB1601VG.
17. Va. HB 1601 (2025).
18. Jake Remington and Rod Carter, “An Overview of State Data Center-Related Tax Incentives,” Commercial Real Estate Ideas/Issues/Trends, Winter 2024/2025 Issue, NAIOP Commercial Real Estate Development Association, https://www.naiop.org/research-and-publications/magazine/2024/Winter-2024-2025/development-ownership/an-overview-of-state-data-center-related-tax-incentives/.
19. “HB 7109 – Final Bill Analysis,” Ways and Means Committee Staff, Florida House of Representatives, July 7, 2025, https://www.flsenate.gov/Session/Bill/2025/7031/Analyses/h7031z1.WMC.PDF.
20. “Evaluation: Computer Services, Data Processing and Research and Development Tax Incentive,” State of Oklahoma Incentive Evaluation Commission and PFM Group Consulting LLC, November 17, 2023, https://oklahoma.gov/content/dam/ok/en/omes/documents/iec/archive/support/2023/ComputerDataExemptionEvaluation11172023.pdf.
21. Kasia Tarczynska, Good Jobs First.
22. Alabama House Bill 154 (2012), https://arc-sos.state.al.us/ucp/B12110AA.AVA.pdf.
23. Ala. Code § 40-9B-4, https://alison.legislature.state.al.us/code-of-alabama?section=40-9B-4.
24. § 40-9B-3(4), https://alison.legislature.state.al.us/code-of-alabama?section=40-9B-3.
25. Ark. House Bill 1654 (2023), https://www.arkleg.state.ar.us/Bills/Detail?id=hb1654&ddBienniumSession=2023%2F2023R.
26. Ibid.
27. Ark. HB 1444 (2025), https://arkleg.state.ar.us/Bills/Detail?id=hb1444&ddBienniumSession=2025%2F2025R.
28. Ark. Code Annotated § 26-52-456, https://law.justia.com/codes/arkansas/title-26/subtitle-5/chapter-52/subchapter-4/section-26-52-456.
29. Florida House Bill 7109 (2017), https://laws.flrules.org/2017/36.
30. Fla. Stat. § 212.08(5)(r), https://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0200-0299/0212/Sections/0212.08.html.
31. Ibid.
32. Fla. HB 7061 (2021), https://www.flsenate.gov/Session/Bill/2021/7061/BillText/er/PDF.
33. Fla. HB 7031 (2025), https://www.flsenate.gov/Session/Bill/2025/7031/BillText/er/PDF.
34. “HB 7109 – Final Bill Analysis,” Ways and Means Committee Staff, Florida House of Representatives, June 5, 2017, https://www.flsenate.gov/Session/Bill/2017/7109/Analyses/h7109z1.WMC.PDF.
35. “HB 7061 – Final Bill Analysis,” Florida, June 1, 2021, https://www.flsenate.gov/Session/Bill/2021/7061/Analyses/h7061z1.WMC.PDF.
36. “HB 7031 – Final Bill Analysis,” Florida, July 7, 2025.
37. Official Code of Georgia Annotated § 48-8-3 (68.1), https://law.justia.com/codes/georgia/title-48/chapter-8/article-1/part-1/section-48-8-3.
38. Ga. House Bill 696 (2018), https://www.legis.ga.gov/legislation/52065.
39. Ga. HB 1291 (2022), https://gov.georgia.gov/document/2022-signed-legislation/hb-1291.
40. “High Technology Data Center – County Expenditures,” Georgia Department of Revenue, May 9, 2022, https://dor.georgia.gov/data-centers-sales-use-tax-exemption-aggregate-expenditures-county.
41. O.C.G.A. § 48-8-3 (68.1)(G)(v).
42. Ibid.
43. § 48-7-40.17, https://law.justia.com/codes/georgia/title-48/chapter-7/article-2/section-48-7-40-17.
44. Bennett Hardee, Alexandra Hill, and Tommie Shephard, “Tax Incentive Evaluation: Georgia High-Tech Data Center Equipment Exemption,” Carl Vinson Institute of Government at the University of Georgia, and the Georgia Department of Audits and Accounts, January 6, 2023, https://www.audits2.ga.gov/reports/summaries/high-tech-data-center-sales-tax.
45. Ibid.
46. Ibid.
47. David Wickert, “Georgia lawmakers debate eliminating state income tax,” Atlanta Journal Constitution.
48. Ga. House Bill 1192 (2025), https://www.legis.ga.gov/legislation/66812.
49. Kentucky House Bill 8 (2024), https://apps.legislature.ky.gov/record/24rs/hb8.html.
50. Ky. House Bill 775 (2025), https://apps.legislature.ky.gov/record/25rs/hb775.html.
51. Ky. Revised Statute 154.20-228, https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=55423.
52. K.R.S. 154.20-220, https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=56356.
53. Sec. 154.20-229, https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=55424.
54. Sec. 154.20-229(11).
55. La. House Bill 825 (2024), https://www.legis.la.gov/legis/ViewDocument.aspx?d=1382756.
56. Ibid.
57. Noah O’Dell and Deborah Vivien, “Legislative Fiscal Note: HB827-Enrolled,” Louisiana Legislative Fiscal Office, May 28, 2024, https://www.legis.la.gov/legis/ViewDocument.aspx?d=1378716.
58. La. HB 10 (2024), https://www.legis.la.gov/legis/ViewDocument.aspx?d=1391656.
59. Mississippi House Bill 1701 (2010), https://www.legislature.ms.gov/legislation/previous-sessions/HB/2701.
60. Miss. Senate Bill 2271 (2019), https://billstatus.ls.state.ms.us/documents/2019/dt/SB/2200-2299/SB2271SG.pdf.
61. Miss. Code Annotated § 27-13-5(7), https://law.justia.com/codes/mississippi/title-27/chapter-13/section-27-13-5.
62. § 57-113-25(3)(c), https://law.justia.com/codes/mississippi/title-57/chapter-113/article-3/section-57-113-25/.
63. Missouri Senate Bill 149 (2015), https://www.senate.mo.gov/15info/pdf-bill/tat/SB149.pdf.
64. Mo. Revised Statute § 144.810, https://revisor.mo.gov/main/OneSection.aspx?section=144.810&bid=36023&hl=.
65. “Data Centers Sales and Use Tax Exemptions,” North Carolina Department of Commerce, November 2025, https://www.commerce.nc.gov/grants-incentives/tax-other-cost-savings#DataCentersSalesUseTaxExemptions-299.
66. Ibid.
67. North Carolina House Bill 117 (2015), https://www.ncleg.gov/BillLookup/2015/H117.
68. N.C. Gen. Stat. § 143B-437.08, https://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Chapter_143B/GS_143B-437.08.html.
69. N.C. Dept. of Commerce.
70. N.C. Gen. Stat. § 105-164.13(55) and (55a).
71. Oklahoma Statutes Title 68 § 1357(21), https://www.oscn.net/applications/oscn/DeliverDocument.asp?CiteID=92350.
72. Ibid.
73. “Major Group 73: Business Services: Industry Group 737,” Standard Industrial Classification Manual, U.S. Department of Labor, 2025, https://www.osha.gov/data/sic-manual/major-group-73.
74. 68 O.S. § 1357.
75. “Evaluation: Computer Services, Data Processing and Research and Development Tax Incentive,” State of Oklahoma Incentive Evaluation Commission and PFM Group Consulting LLC, November 17, 2023, https://oklahoma.gov/content/dam/ok/en/omes/documents/iec/archive/support/2023/ComputerDataExemptionEvaluation11172023.pdf.
76. South Carolina House Bill 3720 (2012), https://www.scstatehouse.gov/sess119_2011-2012/bills/3720.htm.
77. S.C. Code § 12-36-2120(79), https://www.scstatehouse.gov/code/t12c036.php.
78. Ibid.
79. Ibid.
80. Tenn. Senate Bill 2223 (2007), https://www.capitol.tn.gov/Bills/105/Chapter/PC0602.pdf.
81. Tenn. SB 2537 (2016), https://publications.tnsosfiles.com/acts/109/pub/pc1001.pdf.
82. Tenn. Code Ann. § 67-6-206(c) and (d), https://law.justia.com/codes/tennessee/title-67/chapter-6/part-2/section-67-6-206/.
83. Krista Lee, “Fiscal Note: HB 1535/SB2537,” Fiscal Review Committee, Tennessee General Assembly, February 22, 2016, https://www.capitol.tn.gov/Bills/109/Fiscal/HB1535.pdf.
84. Texas Tax Code Section 151.359, https://capitol.texas.gov/tlodocs/83R/billtext/html/HB01223F.HTM.
85. Tex. House Bill 2712 (2015), https://capitol.texas.gov/tlodocs/84R/billtext/html/HB02712F.HTM.
86. Ibid.
87. Tex. Tax Code Sec. 151.3595, https://statutes.capitol.texas.gov/Docs/TX/htm/TX.151.htm#151.3595.
88. Sec. 151.359(h).
89. Sec. 151.3595(i).
90. Kimberly Sarte, et al., “Economic Development Incentives 2025,” Joint Legislative Audit and Review Commission (JLARC) briefing to the Virginia General Assembly, November 10, 2025, https://jlarc.virginia.gov/pdfs/presentations/Rpt611Pres.pdf.
91. Rebecca Leppert, “What we know about energy use at U.S. data centers amid the AI boom,” Pew Research Center, October 24, 2025, https://www.pewresearch.org/short-reads/2025/10/24/what-we-know-about-energy-use-at-us-data-centers-amid-the-ai-boom/#how-many-data-centers-are-in-the-u-s-and-where-are-they.
92. “Data Center and Manufacturing Incentives,” JLARC, Virginia General Assembly, June 17, 2019, https://jlarc.virginia.gov/pdfs/reports/Rpt518-1.pdf.
93. “Economic Development Incentives 2025: Spending and Performance,” JLARC, Virginia General Assembly, November 10, 2025, https://jlarc.virginia.gov/pdfs/reports/Rpt611.pdf.
94. Code of Virginia § 58.1-609.3(17), https://law.lis.virginia.gov/vacode/title58.1/chapter6/section58.1-609.3/.
95. Virginia Senate Bill 130 (2010), https://legacylis.virginia.gov/cgi-bin/legp604.exe?101+ful+CHAP0784+hil.
96. Ibid.
97. Code of Va. § 58.1-609.3(18).
98. Ibid.
99. Ibid.
100. Va. Senate Bill 112 (2012), https://legacylis.virginia.gov/cgi-bin/legp604.exe?121+ful+CHAP0613+hil.
101. Code of Va. § 58.1-609.3(19).
102. Ibid.
103. “Economic Contributions of Data Centers in the United States,” PwC.
104. Ways and Means Committee Staff, Florida House of Representatives.
105. State of Oklahoma Incentive Evaluation Commission and PFM Group Consulting LLC.
106. Carl Vinson Institute of Government at the University of Georgia, and the Georgia Department of Audits and Accounts.
107. Kasia Tarczynska, Good Jobs First.
108. “Data Centers in Texas,” Texas Comptroller of Public Accounts, 2025, https://comptroller.texas.gov/taxes/data-centers/.
109. Code of Va. § 58.1-609.3(18).