After months of budget negotiations, Virginia Democrats have agreed to impose a new electricity tax on data centers expected to raise up to $600 million annually. The policy, announced by Americans for Tax Reform on June 23, 2026, targets one of the commonwealth's leading industries by taxing electricity consumption at facilities that power the nation's digital infrastructure. While the final budget preserved the state's existing sales and use tax exemption for data center equipment, it still delivers what the organization calls a substantial tax increase on an industry that has made Virginia the global center for data centers.
Data centers currently generate more than $1 billion annually in state and local tax revenue and support more than 31,000 direct and indirect jobs across Virginia. The industry has generated billions of dollars in private investment over the years, helping establish the commonwealth as the nation's leading data center hub. Governor Abigail Spanberger and Democratic legislators spent months debating whether and how aggressively to target the data center industry before settling on the electricity tax as part of the state budget package.
According to the report, the electricity tax will directly increase the cost of operating and expanding data center facilities because energy is "one of the largest costs associated with operating a data center." The report notes that unlike many other industries, data centers require enormous amounts of electricity to power servers and maintain cooling systems. Critics like Senate President Pro Tempore Louise Lucas have portrayed the existing sales tax exemption as a special carveout for large corporations, but the report argues the exemption is intended to avoid taxing equipment used to provide data center services.
The report explains that taxing business inputs "increases the cost of investment and can make Virginia a less attractive destination for future development." Virginia's emergence as the nation's leading data center hub came from policymakers creating 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 treating a successful industry as a convenient source of new revenue rather than a driver of economic growth, at a time when states across the country are competing aggressively to attract data center projects.
The report warns that the new tax will increase operating costs, make future investments more expensive, and weaken Virginia's attractiveness as a destination for data center development. Maintaining the commonwealth's leadership position will require policymakers to resist efforts to single out successful industries for new taxes whenever additional revenue is sought. The report concludes that while avoiding the sales tax increase was important, it doesn't justify imposing a different tax that still undermines the competitive advantage Virginia built over decades through policies that encouraged investment and growth.