Virginia Democrats Come Together to Support $600 Million Tax Hike

After months of negotiations, Virginia Democrats just came together to impose a $600 million tax hike on one of the commonwealth’s leading industries.

The policy, which has come about as part of budget negotiations, is to impose a new electricity tax on data centers that is expected to raise up to $600 million annually.

Governor Abigail Spanberger and Democrats in the legislature have spent months debating whether and how aggressively to target Virginia’s data center industry. While the final budget ultimately preserved the state’s existing data center sales and use tax exemption, it still delivers a substantial tax increase on an industry that has helped make Virginia the global center of digital infrastructure.

Data centers have generated billions of dollars in private investment, support more than 31,000 direct and indirect jobs, and generate more than $1 billion annually in state and local tax revenue. Yet instead of strengthening Virginia’s competitive position, Democrats chose to impose a new tax on one of the industry’s most important operating expenses.

Critics, such as Senate President Pro Tempore Louise Lucas often portray the data center sales tax exemption as a special carveout for large corporations. However, the exemption is intended to avoid taxing equipment used to provide data center services. Taxing those business inputs increases the cost of investment and can make Virginia a less attractive destination for future development. This policy is no handout at all, it’s just a sound, efficient tax policy.

Energy is one of the largest costs associated with operating a data center. Unlike many other industries, data centers require enormous amounts of electricity to power servers and maintain cooling systems. By taxing electricity consumption, Democrats are directly increasing the cost of operating and expanding data center facilities in Virginia.

Taxing one of the industries’ primary inputs will just increase operating costs, make future investments more expensive, and weaken Virginia’s attractiveness as a destination for data center development.

Virginia’s emergence as the nation’s leading data center hub was not accidental. Policymakers created a tax environment that encouraged long-term investment and provided certainty for businesses making billion-dollar commitments. The new electricity tax moves in the opposite direction by increasing the cost of doing business and treating a successful industry as a convenient source of new revenue rather than a driver of economic growth.

States across the country are competing aggressively to attract data center projects and the jobs and investment they create. Virginia should be working to maintain its competitive advantage, not erode it with a new tax on energy consumption.

While the final budget ultimately preserved the sales tax exemption, avoiding one harmful tax increase does not justify imposing another. The new electricity tax increases costs on a productive and growing industry, discourages future investment, and makes Virginia less competitive. The Commonwealth’s position as the nation’s data center leader was built over decades through policies that encouraged investment and growth. Maintaining that leadership will require policymakers to resist efforts to single out successful industries for new taxes whenever additional revenue is sought.