Some state lawmakers question tax breaks for datacenters, others roll out mat

As some US lawmakers are questioning the datacenter boom, politicians in a few other states that have yet to capitalize on the industry's expansion are trying to catch up.

In April, Georgia state lawmakers finalized a bill that halted tax breaks for new datacenters for two years and assigned a commission to study the industry's impact on the state.

"They create big buildings, but they don't create jobs," bill sponsor Sen. John Albers (R) said when discussing the state subsidies with colleagues ahead of their vote. "If it's not coming back as a return on investment, it's not good policy."

Georgia was expected to forgo nearly $311 million in state revenue from such tax breaks between 2025 and 2029. Gov. Brian Kemp (R) vetoed the legislation, saying that abruptly paused subsidies would hamper investments and economic development in the state.

Lawmakers in Georgia were not the only state politicians raising concerns over datacenter tax breaks and soaring energy consumption this year as developers raced from coast to coast to open new facilities.

Virginia contends with 'impacts'

In Virginia, a joint legislative study is underway to evaluate "the impacts of datacenters within the Commonwealth," according to the 2024 budget amendment funding the analysis. Northern Virginia is now the largest hub of warehouses filled with data-crunching computers in the US and the second-largest market in the world, according to a recent S&P Global Commodity Insights industry report.

Virginia provided more than $750 million in tax subsidies for datacenters in 2023, the state financial report shows.

While state taxpayers foot the bill for datacenter tax credits, local towns and counties reap the financial benefits, Julie Bolthouse, land use director at the Piedmont Environmental Council, said in an interview.

"The local governments are the ones collecting property taxes on all the servers and expensive equipment," Bolthouse said. "It brings in a lot of revenue and helps to bolster these communities and pay for schools."

But rather than bringing economic development to the Virginia areas most in need, datacenter developers have flocked to the prosperous northern region near Washington, DC, where the connections, fiber lines and customers are located, Bolthouse noted.

Delegate Richard "Rip" Sullivan, a Democrat representing Northern Virginia's Fairfax County, said he plans to reintroduce a bill in 2025 that would require datacenters that seek tax credits to meet certain energy efficiency standards and to phase out polluting diesel-powered backup generators.

"If they get these benefits from the state, it seems like a reasonable request," Sullivan said in an interview.

Connecticut grid concerns

A bill that moved through the Connecticut legislature in 2024 would have required state regulators to assess how large datacenters affect grid reliability.

The legislation did not reach the governor's desk before the legislative session ended in May. Aundré Bumgardner, a Connecticut Democratic lawmaker and co-sponsor of the bill, said the bill will be reintroduced in 2025.

The developer of a proposed "hyperscale" datacenter in the town of Waterford opposed the regulatory review and warned that Massachusetts' growing high-tech industry might lure AI data opportunities from Connecticut.

"This is a 30-year stream of income to the state, plus $231 million in host fees paid to the municipality," Thomas Quinn, CEO of startup NE Edge LLC, said of his project during a legislative hearing in March. "It's not just about the taxes — the taxes qualify us with 34 other states — but it's the other parts of this, which has to do with the leverage of economic development over the life of the contract."

The 1.5 million-square-foot datacenter consisting of two facilities would run on carbon-free, "behind the meter" energy from the Millstone nuclear merchant plant, where they would also be built, Quinn said. Plant majority owner Dominion Energy Inc. supports the project, he said.

Bumgardner said residents in his district worry about potential environmental problems after hearing about Virginia residents complaining about datacenter growth. They also wonder how an influx of data processing businesses, on top of the state's electrification efforts, could affect the grid, the lawmaker said in an interview.

"How our state could simply ignore this trillion-dollar question is a bit alarming," Bumgardner said.

The massive windowless data processing facilities dotting the US landscape today consume about 4% of US electricity but could account for up to 9.1% by 2030, a recent report from the Electric Power Research Institute estimated.

More than half of US states today offer economic development programs and tax policies that benefit datacenters. Such policies treat datacenter equipment like they do manufacturing equipment, said Josh Levi, president of the Data Center Coalition.

"Due to the high initial investment — with some projects exceeding $1 billion in capital investment and the need for regular replacement of costly equipment — sales and use tax exemptions are vital for the datacenter industry when choosing US markets," Levi said in an email. "These programs allow for a cost of ownership and cost of occupancy that can be competitive."

Datacenters, Levi added, "are the backbone of our modern economy."

Some states want more

Michigan lawmakers this year worked on legislation to expand tax incentives for large datacenters. In Maryland, a new law that went into effect July 1 exempts datacenters and other commercial facilities with "emergency backup" power needs from a regulatory review.

The new law was spurred in part by the Maryland Public Service Commission's decision in 2023 to deny Aligned Data Centers LLC's application to install 168 3-MW diesel backup generators at its planned facility.

In opposing the application, the state Office of People's Counsel and several environmental groups argued the company might power up 504 MW of diesel-fueled power generation in case of an outage, in violation of state air quality regulations.

In signing the bill, Maryland Gov. Wes Moore (D) said the measures would "supercharge the datacenter industry in Maryland so we can unleash more economic potential and create more good paying union jobs."

The new Maryland regulations come as developer Quantum Loophole Inc. moves forward with a 2,100-acre datacenter hub in Western Maryland. Aligned Data Centers is also back in play, the company confirmed in an email, and the company's backup diesel generators may now be installed.

On July 31, Maryland regulators approved $33 million in grid investments to accommodate the new datacenter complex, of which $27 million will be borne by FirstEnergy Corp.'s ratepayers in Maryland.

Since 2020, Maryland has been offering a sales-and-use tax exemption for datacenters that locate or expand in the state. To qualify, developers must also create at least five jobs.