Lawmakers are looking to capitalize on the projected artificial intelligence-fueled growth in data centers, as states muscle for position as the industry’s most desirable locations.
Some of the more than 30 states currently offering tax incentives for data centers are updating and extending those to bring in more business. Some without incentives want to create them to start vying for the business.
States are also looking to stand out by helping speed the permitting process and by allowing users of large electricity loads, such as data centers, to construct dedicated, on-site power plants.
“We can be anywhere, so why don’t we go where we are welcome,” said Steve DelBianco, president of NetChoice, a tech industry trade group whose members include Amazon, Meta and Google.
NetChoice has testified on legislation around the country, encouraging states to enact and protect data center incentives.
States, seeing a lucrative opportunity for more revenue, are responding. Lawmakers in at least eight states introduced bills this year to create new incentives for data centers or expand on existing ones: Colorado, Kansas, Kentucky, Minnesota, Mississippi, North Dakota, Oklahoma and West Virginia.
DelBianco said states should treat data centers as they do other industries, such as manufacturing, which tend not to get charged sales and related taxes on inputs to production, like machinery and equipment.
The tax treatment is worth billions to the data center industry given that they refresh their servers and equipment every four or five years. Critics question whether the tax breaks that states give to the industry, which services the world’s richest companies, are worth it for taxpayers.
Industry advocates say building data centers is capital-intensive and requires incentives to catalyze the investment, which helps raise revenue for states.
Those advocates also contend that states stand to make billions in tax revenue. The data center industry spent nearly $100 billion in 2024, more than any other industry. Those funds trickle down to states and local governments in the form of jobs and other activity that produces tax revenue.
In 2023, the data center industry supported nearly 4.7 million jobs and contributed $162 billion in tax revenue nationwide, which was used by states to fund education, public safety, and transportation, according to Dan Diorio, senior director of state policy at the Data Center Coalition.
“An increasing number of states are recognizing that data centers invest in communities, create significant supply chains, enable workforce ecosystems, and generate considerable state and local tax revenue,” Diorio said.
The opportunity for state economic growth follows expanding applications for AI, which depends on a herculean amount of computing power. Data centers provide computing infrastructure for everything from AI-assisted internet searches to uses in health care, finance, retail and manufacturing industries.
The resulting demand for data centers also has created a surge in demand for electricity, putting states on the hook to both meet the need and respond to related concerns about higher energy costs and the environment.
The scale is enormous. Demand for data center capacity is estimated to rise between 19% and 22% annually through 2030, according to McKinsey & Co.
Three incentive bills have become law this year, including measures in Kansas, Kentucky and West Virginia.
In West Virginia, Gov. Patrick Morrisey (R) signed a comprehensive measure that allows data centers to build their own independent dedicated power generation.
Under a 2022 law, only two so-called microgrids were permitted in the state, and both were required to be powered by renewable energy. The new law removes the cap on the number of permissible microgrids and allows them to use any type of fuel, including coal or natural gas. Another newly enacted law would create a permitting dashboard to operate as a one-stop shop for obtaining and renewing permits for critical infrastructure projects and projects delivering significant economic development.
The laws “will make West Virginia the most attractive state in the country for data centers,” Morrisey said in a statement.
The new Kansas law establishes a sales tax exemption for 20 years for data center operators investing at least $250 million. Kentucky expanded its existing sales and use tax exemptions beyond Louisville. It set a $450 million investment threshold for the data center to receive the benefit, which then may be received over a 50-year lifetime.
In Colorado, Sen. Nick Hinrichsen (D) introduced a comprehensive, bipartisan bill that would provide 20-year sales and use tax exemptions to data center developers. While the measure died, it was the first such bill to make it out of committee after recent attempts led by other lawmakers — a sign Hinrichsen took to try again next year.
He said in a recent interview that a data center could really help his Pueblo-based district, which is losing a coal-fired power plant and the $25 million in property taxes it provides.
“The school districts are going to get hit the hardest,” Hinrichsen said. “We’ve been really looking at what makes sense to replace it, and there’s nothing that is both feasible and comes close to the economic impact except for … a hyperscale data center.”