newsweek.com · Newsweek · September 9, 2026
Map Shows States Looking to Scrap Tax Breaks for Data Centers - Newsweek
# Map Shows States Looking to Scrap Tax Breaks for Data Centers
Published
Sep 09, 2026 at 08:59 AM EDT
By Amanda Greenwood
Associate News Editor
States that once competed aggressively to attract data centers with lucrative tax incentives are increasingly reconsidering those policies as the AI boom drives unprecedented growth in the industry.
For more than a decade, states offered sales tax exemptions, property tax abatements and other incentives to lure major investments from technology companies including Amazon, Microsoft, Meta and Google.
Policymakers argued that data centers would create construction jobs, generate tax revenue and establish states as hubs for the growing digital economy.
But the arrival of generative AI has dramatically increased demand for data centers, causing the value of many incentive programs to far exceed original projections. At the same time, concerns about electricity demand, water consumption, grid infrastructure costs and lost tax revenue have sparked political opposition from lawmakers and local communities.
Several states have now moved to pause, narrow or eliminate tax incentives that were once considered essential economic development tools.
## Arizona
Arizona lawmakers have introduced several bills that would repeal tax breaks for data centers. The state currently offers transaction privilege and use tax exemptions for qualifying data center equipment. Senate Bills 1463 and 1467, along with House Bill 2820, would eliminate those incentives by repealing the state's data center certification program.
The proposals have been introduced, but haven’t become law yet.
## Georgia
Georgia lawmakers are considering ending a tax exemption for equipment used in qualifying high-technology data centers. Senate Bill 410 would stop the state from issuing new exemption certificates while preserving benefits already granted.
State fiscal analysts estimated that ending new exemptions could significantly increase state and local tax revenue.
## Illinois
Illinois paused incentives for new data center developments after Governor JB Pritzker announced a two-year suspension beginning July 1, 2026. The state previously used its Data Center Investment Program to attract facilities through a range of tax exemptions tied to investment and job creation requirements. Pritzker said the pause would allow Illinois to study the industry's impact on energy demand, water use, and electricity costs.
## Michigan
Michigan currently provides sales and use tax exemptions for qualifying data center equipment, but some lawmakers want to end those incentives. House Bill 5396 would eliminate the sales tax exemption, while House Bill 5398 would make related changes to property tax treatment. The legislation remains under consideration and hasn’t yet been enacted.
## Minnesota
In 2025, Minnesota rolled back part of its data-center tax break through H.F. 9, 1st Special Session, Chapter 13, Article 3, Section 4. The law repealed the sales-tax exemption for electricity used by qualified data centers and qualified refurbished data centers, effective for sales and purchases after June 30, 2025.
## New Jersey
New Jersey enacted the " End Data Center Tax Credits Act" in August 2026. The law eliminated the remaining $250 million available for AI and data center projects under the state's Next New Jersey Program. Lawmakers cited concerns about taxpayer costs, electricity consumption, and the need to reassess subsidies for large technology companies.
## Ohio
Ohio has paused new applications for its data center sales tax exemption. Governor Mike DeWine announced the decision in May 2026 while lawmakers study the impact of the rapidly expanding industry. The exemption had helped attract billions of dollars in investment, but critics raised concerns about its growing cost to taxpayers. Sources: Governor Mike DeWine's office; Ohio legislative review
## Texas
Texas lawmakers and state officials are reexamining one of the country's largest data center tax incentive programs. In June 2026, Governor Greg Abbott recommended repealing sales tax exemptions and other incentives for data centers, arguing that developers should cover more of the costs associated with power and infrastructure upgrades.
No repeal has yet been enacted.
## Virginia
In 2026, Virginia lawmakers proposed ending the state's data-center sales-and-use-tax exemption through S.B. 30, Item 3-5.24 #3s, a member-request budget amendment sponsored by Senator Danica Roem. The amendment would have made the exemption unavailable to qualifying data-center operators and their tenants beginning July 1, 2026. A companion revenue amendment, S.B. 30, Item 0 #14s, projected roughly $1 billion in additional general-fund revenue in the first year and $1.1 billion in the second.
Virginia lawmakers did not ultimately enact Roem’s proposed rollback of the data-center sales-tax exemption. Instead, the 2026 budget compromise preserved the exemption for qualifying data-center equipment while imposing a new $0.011-per-kilowatt-hour tax on data-center electricity consumption, making Virginia an example of policymakers shifting toward a new tax rather than eliminating the existing incentive.
## Washington
Washington scaled back its data center tax incentives in 2026. A new law, Senate Bill 6231, removed tax exemptions for replacement server equipment and ended eligibility for certain refurbished data centers, while keeping incentives in place for qualifying new facilities
## Key Takeaway: Why Are States Reconsidering Tax Breaks
Many states created data center incentives during the 2010s to attract investment, construction jobs, and long-term tax revenue.
The AI boom has dramatically increased the size and number of data centers, causing some incentive programs to cost far more than originally expected.
State lawmakers are increasingly questioning whether large technology companies still need public subsidies and whether taxpayers should bear the costs associated with rising power demand, water consumption, and new infrastructure.
Newsweek has reached out to the Data Center Coalition via email for comment on efforts by states to scale back, suspend, or eliminate data center tax incentives and is awaiting a response.
Contact Newsweek editors on this story: Tobias Meyjes (t.meyjes@newsweek.com) and James Debens (j.debens@newsweek.com)