No, Senator Moreno, we should not tax data centers.

Senator Bernie Moreno (R-Ohio) on Thursday proposed a national tax on data centers to replace any incentive offered in state tax codes. While it is unclear how exactly this would be calculated or collected, what is clear is that it would be a terrible idea.

In a conversation with commentator Scott Jennings, Sen. Moreno attempted to defend data center construction from activists advocating moratoria on construction, making such salient points as “you gotta produce your own power” that could be sold back to the grid, lowering costs instead of raising them. But his “number one” suggestion was that data centers should receive no tax incentives whatsoever. The American people, he contended, need assurance that they are not effectively subsidizing data center construction through tax breaks. He then intimated he was likely going to introduce legislation to tax “100%” of data center tax incentives offered by states, effectively mooting them.

This raises several practical questions. First, what exactly qualifies as a “tax incentive”? Some states offer unique tax breaks explicitly to attract business from data centers, something states have been offering industries in bidding wars with one another for decades. Resisting these in favor of broad-based taxation at a low rate or eliminating certain taxes altogether is a noble cause, but what about sales and use tax exemptions that broadly apply to machinery and equipment? Does Sen. Moreno plan to include this longstanding practice that applies to all industries in his definition of “tax incentive”?

Products and services are already subject to sales taxes in most states, so states generally avoid taxing business inputs. It makes more sense to tax a shovel sold at Wal-Mart than the steel the shovel factory buys to make it. Taxing inputs double-taxes the product and raises the price. The non-partisan Tax Foundation’s December 2025 report on sales and use tax exemptions helpfully explains how these are in line with the longstanding principle that business inputs should not be taxed because it depresses growth and raises prices.

Data centers benefit from broadly-applicable exemptions from sales taxes on the servers that go into these warehouses, the same exemption any business buying a server for commercial use would receive. Would Sen. Moreno single out this industry to punish with double taxation, raising the cost of digital services?

The second question is how the federal government would calculate 100% of a given state’s tax incentive. What if the IRS’s score disagrees with the state revenue agency? Do they take the state government’s word for it or come up with their own calculation of how much revenue the state is foregoing? It would certainly be impossible to arrive at a standard rate that could be applied to every state, so endless litigation would ensue between the federal government and various states over whatever unique tax rates the IRS is trying to apply within a state’s borders. Ohio and Indiana would have different tax rates applied to them and totally different cases against the IRS because of it.

And just how would this tax be collected? Will the IRS shake down tech companies building data centers for money they think should belong to the state government? Will the money go to the state treasury or the federal treasury? Would white knighting for the states only serve to enrich the feds?

Or perhaps the plan is punish the state government for not taxing something. Would they be required to pay the federal government the amount they would have collected, effectively forcing all other taxpayers in the state to make up for lost revenue, then pay it to the IRS instead of their state government? Or would federal programs simply reduce transfer payments to state government for federal programs? As a signer of the Taxpayer Protection Pledge, does Sen. Moreno think it is right or just to coerce states into applying higher tax rates to their citizens than they want to?

Byzantine complications and bad policy outcomes aside, taxes on data centers in general remain a terrible idea. A tax on data centers is a tax on email, cloud storage, and small business operations. It is a tax on your Instagram, X, TikTok, and Facebook posts. It is literally taxing family photos and raising the cost of digital services we use every day.

Does Sen. Moreno really think he knows better than the more than seven thousand state legislators in this country how to manage all 50 states’ tax policies? Does he really think he ought to correct their decisions from DC?

Instead of punishing states for tax incentives, Sen. Moreno should focus on the other issues he raised during the talk – energy generation, grid capacity, and water usage are all real concerns voters have about data centers. Cheap, abundant energy, market-based grid management, and innovations in cooling techniques, including some the good Senator mentioned, are the solution. New taxes never are.