A special legislative subcommittee Monday heard yet another report on the tax preferences given to Virginia’s data center industry, but the legislators reached no decisions on whether to end, extend or amend them.
Chairman Luke Torian, D-Dumfries, said there would be at least one and perhaps more additional meetings of the joint House and Senate panel before the 2027 General Assembly session. Torian, who chairs the House Appropriations Committee, closed the meeting with a speech that promised changes but provided no details of what he might propose.
He concluded: “It would be unwise to break the state’s commitments or to completely close the door” on future expansion of the Virginia’s data center fleet, already the largest in the nation. Proposals for an immediate moratorium on future data center construction are already circulating and attacks on data centers have become a staple in midterm election advertising.
Even legislators who have aggressively pushed for a repeal of the tax incentives in the past were muted at the meeting. “I’ve not heard enough information to give me any comfort level with recommendations coming out of this subcommittee,” said Senator Louise Lucas (D-Portsmouth), who earlier this year persuaded the Senate to restore the full sales tax on data center equipment purchases.
She encouraged Torian to hold additional meetings away from Richmond and in a community dealing with the growth and impacts of the industry.
The two analysts from the Weldon Cooper Center for Public Service admitted they lacked answers to many of the questions they got from legislators. They could not provide a statewide estimate of the additional taxes the industry is paying to localities under the tax provisions which do not exempt that industry. They could not say what percentage of all the capital expenditures underway in Virginia were related to data center development.
Economist Terry Rephann opened their presentation with an admission that earlier estimates from that agency about the impact of the state’s major sales and use tax exemption were far too low. For many years it was reported that the state was forgoing a few hundred million dollars annually in uncollected sales tax, but better reporting has shown the number exceeds $1 billion.
“I’m partly responsible for some of the low numbers,” Rephann said.
He told legislators that a new report from Weldon-Cooper looking at other states, but not Virginia, concluded that tax and other incentives are responsible for about 30 to 50 percent of data company decisions on investment locations. Prior research provided by Weldon-Cooper had pointed to the incentives being almost fully responsible for those decisions, but Rephann admitted that was based on interviews and was done years ago.
Several localities have tracked the revenue they are getting on the taxes that are paid by the data centers – mainly personal property taxes and real estate taxes. The sales tax exemption only covers the initial purchase of equipment, which is then subject to another annual levy.
Loudoun County, with the most data centers, puts the additional income at $1.2 billion annually, Prince William County reports $466 million and Fairfax County $110 million, Rephann said. That is almost $1.8 billion for three counties. Mecklenburg County, with its giant Microsoft facility that received the first exemptions, has told its citizens the revenue boost is $1.5 billion.
Rephann also pointed out that many other industries have similar sales and use tax exemptions adopted by the Assembly. Another legislator who has been pushing to end the tax exemptions, Senator Mamie Locke, D-Hampton, asked if any of those other exemptions were saving those industries as much as the $2 billion annually the data centers may be saving.
The answer was yes, but it didn’t come from Weldon Cooper. An economist from the Virginia Department of Taxation told legislators their most recent data shows the similar exemption for the manufacturing industry produces a $1.9 billion benefit to those companies. As with the data centers, manufacturers still owe annual personal property tax or real estate tax on their equipment and buildings.
“There is no question in my mind that incentives impact decisions,” said Delegate Joe McNamara (R-Salem). He said it would be very easy for a future Assembly to make Virginia a far less attractive state to the industry, if that is the goal of the subcommittee. He also expressed frustration with the shortage of data needed to figure out the “return on investment” for the tax preferences.
The subcommittee also heard a presentation from two officials of Governor Abigail Spanberger’s administration on her recent Executive Order 22, which imposed or proposed regulations for data centers on several issues. They highlighted those of her proposals that will need to be adopted by the 2027 Assembly to take effect.
Their plan to force existing facilities to retrofit their generators to the newest technology to reduce air emissions was one example of something they will need legislative authority to do. Preventing local governments from entering into non-disclosure agreements on potential data centers is another.
