A dispute over ending a sales tax exemption on data centers stood in the way of the Virginia General Assembly passing a state budget passing before its regular session ended.
Over the past 18 years, Virginia became the world’s largest data hub, but community opposition to data centers has swelled. Most recently, in Fairfax County, environmental groups are questioning plans to sell part of a county-owned parcel at 3721 Stonecroft Blvd in Chantilly to data center developer Starwood Capital Group.
In a statement issued ahead of a public hearing that the Board of Supervisors will hold on the proposal this afternoon (Tuesday), Sierra Club Virginia’s Great Falls Group urged county leaders to reject the sale agreement and organize a public process for determining what to do with the vacant land.
“Ultimately the County may decide that selling this publicly-owned parcel to this particular developer for this particular use is the best use for the land,” Chair Douglas Stewart and Land Use Chair Ann Bennett said. “However, that decision should be made only after a transparent process that includes careful — and public — consideration of pros and cons, possible alternative uses for the property and a competitive bidding to ensure the deal is in fact a good one for taxpayers, residents and the County overall.”
In addition, politicians are growing anxious about AI’s effect on household electricity bills and lawmakers are considering reducing tax breaks — or scrapping them altogether.
Virginia’s data center tax exemption on eligible computer equipment and software began in July 1, 2010 as an incentive for the industry’s investments in the state. Normally, the sales tax rate is 5.3% — or higher in some regions. The exemption is set to continue through June 30, 2035.
A majority of the Virginia Senate sought to end that exemption early on Jan. 1, 2027, citing $1.6 billion in lost revenue. However, the House didn’t agree, and the two chambers couldn’t reach a truce by the General Assembly’s regular session conclusion on Saturday (March 14).
The state legislature will need to resolve the budget through a special session. After the General Assembly’s session wrapped up, Gov. Abigail Spanberger (D) will act on other bills and will call legislators back later in April to finalize the budget.
“I remain in close contact with leaders in the General Assembly, and I look forward to calling lawmakers back to Richmond on April 23 to pass a budget that delivers on the responsible, pragmatic leadership Virginians voted for this past November,” Spanberger said in a statement.
As the session ended, Democratic leaders held firm in their positions.
In remarks on the House on March 12, Del. Luke Torian (D-24), the House Appropriations chair, said the chamber should reject the Senate’s position on the tax exemption. He cited Joint Legislative Audit & Review Commission research showing the data center industry provides 74,000 jobs, $5.5 billion in labor income and $9.1 billion toward Virginia’s GDP every year. Torian also pointed to more than $2 billion in local tax revenue annually.
“But eliminating the sales tax exemption would cost Virginia far more than lost tax revenue,” Torian said. “Virginia’s reputation as a reliable place to do business would be called into question.”
Data center supporters have pointed to Virginia Economic Development Partnership’s estimates of $1.2 billion in lost tax revenue without the tax exemption for new data center investments over five years.
Sen. Louise Lucas (D-18), the Senate’s Finance and Appropriations chair, has been steadfast in her support for ending the tax exemption. Lucas, who had originally voted for the tax exemption in 2009, said it was an incentive and “was never meant to last forever.”
Lucas highlighted the recent $427 million sale of George Washington University’s Loudoun campus to Amazon Data Services.
“One data center for one company can afford to pay $427 million dollars for land alone – but the entire industry says it doesn’t have the money to give back their tax break that costs Virginia schools one billion a year,” Lucas shared on X. “I WILL NOT back down from this fight.”
Lucas’ proposal reflects growing pushback nationwide as the aisles of server racks in data centers have gotten increasingly large and seemingly endless, with campuses of server warehouses, electrical substations and backup diesel generators dwarfing the footprints of factories and stadiums. Some need more power than a small city, more than any utility has ever supplied to a single user.
Spanberger’s office said she was wary of “going back on Virginia’s commitments to businesses that have invested in the Commonwealth.”
Lucas, who chairs the finance committee and supports the tax proposal, retorted on X: “Gov. Spanberger thinks our chicken isn’t cooked — then what is the Senate supposed to pluck out of our budget? Raises for teachers, health insurance assistance, transit support, a tax rebate, or childcare slots?”
The General Assembly is scheduled to reconvene for a special session on the state budget on April 23.
