Virginia lawmakers are moving to tax data centers’ electricity use under a budget conference report unveiled this week, a measure expected to generate $1.2 billion over the two-year state budget cycle.
The provision, included in the conference report just released by the House and Senate, would charge data centers $0.011 per kilowatt-hour of electricity consumed each month. Collections would be capped at $600 million annually; any amount collected above that cap would be refunded to data center operators on a prorated basis after the fiscal year ends. The definition of “data center” used in the bill is written to exclude telecommunications companies.
The fee is projected to bring in $600 million in fiscal year 2027 and another $600 million in fiscal year 2028.
The measure comes as Virginia, home to the world’s largest concentration of data centers, faces growing scrutiny over the industry’s strain on the electric grid and water supplies, particularly in Northern Virginia’s “Data Center Alley” in Loudoun County.
As a result, the debate over forcing data centers to contribute more money to the commonwealth has been the main topic of all budget negotiations.
The Senate wanted to eliminate the sales and use tax break that data centers are set to receive through 2035. The House and the governor did not want to go back on that commitment.
That tax break remains, but the Senate did get its pound of flesh with the energy consumption fee.
Alongside the new fee, the conference report directs the state Department of Environmental Quality to develop noise regulations for data centers and to identify areas facing cooling water scarcity. It also orders the State Corporation Commission to begin collecting data on data centers’ electric service agreements, water usage and generator permitting.
The conference report also includes a new Joint Subcommittee on Tax Policy to further study data centers, signaling that the new consumption fee may not be the Legislature’s final word on how to tax or regulate the industry.
“This budget agreement reflects our shared commitment to making Virginia more affordable for families,” said Senate Finance Appropriations Chair Louise Lucas and House Appropriations Chair Luke Torian after the report was released. “At a time when too many households are feeling squeezed by rising costs and economic uncertainty, this conference report makes historic investments to lower costs, strengthen our schools, protect access to healthcare, expand economic opportunity, and maintain the Commonwealth’s strong fiscal foundation.”
The budget still requires final approval by both chambers and Gov. Abigail Spanberger before taking effect.