Virginia Senate leaders did something remarkably courageous this week in writing a budget that ends the sales tax exemption for data centers. As Majority Leader Scott Surovell, D-Fairfax, pointed out, the exemption was projected to cost the state about $1.54 million when it was passed in 2008. In 2025, it cost Virginia $1.6 billion.  

And that amount will escalate as the industry continues its explosive growth across Virginia. Dominion Energy told the State Corporation Commission recently that data centers have requested 70,000 megawatts of power, almost triple the utility’s current peak load. Dominion isn’t alone; Northern Virginia Electric Cooperative (NOVEC) expects its peak load to grow from 1,400 megawatts to more than 5,000 megawatts between 2025 and 2030, with more than 60 new data center buildings coming online. By 2040, NOVEC expects data center demand to reach 13,000 megawatts. 

The Data Center Coalition, which represents the tech industry, warns that not all of this growth will materialize if Virginia yanks away its sales tax exemption. Instead of building here, the industry will take its business to other states. 

 To which Virginia residents can only respond, in unison, “Is that a threat, or a promise?”

Local communities would love to see the industry pull up stakes and move elsewhere, but the question our elected leaders are asking is whether that would actually happen. Is the industry so dependent on the sales tax exemption that the 70,000 megawatts of requested demand cited by Dominion would evaporate in its absence?  

Or, as seems more likely, would the industry continue to grow here because it has nowhere else to go? Other states are reporting the same explosion in data center growth, and the same challenges in finding enough land, power and water to serve the escalating demand. In which case, Virginia threw $1.6 billion at some of America’s richest corporations last year for no reason, and it should stop the gravy train right now. 

There is a tendency among government leaders to see taxes it chooses to forego as different from government spending, but economists understand that they are economically equivalent. Lost tax revenue has the same impact on a budget as spending does. That $1.6 billion is a real number, representing income Virginia could have used for spending priorities, or (as the Senate budget proposes) to issue refunds to residents. 

 There is also a question of fairness. The sales tax that the tech industry is excused from paying is the same state sales tax that you and I pay: 5.3%.  They buy IT hardware and equipment, while you and I buy life’s necessities. If we didn’t have to pay sales taxes either, we would have more money to put back into the economy, supporting other people’s businesses and jobs. 

This looks a lot like the argument that the data center industry makes for why it should continue to be excused from paying taxes that all other businesses and residents pay. Why them and not us? Yet the state requires tax revenues to fund the services it provides. If we all agree that data centers should pay their fair share, that means paying the same taxes we do.

Certainly, yanking the tax exemption away so abruptly upsets expectations — and not just for the industry. As I wrote last week, the House and Senate had already taken diverging approaches to managing data center growth. The Senate passed a bill, SB 619, requiring data centers over 90 megawatts to get permission from the SCC before they can operate. The permission would be contingent on a number of factors designed to protect both other ratepayers and Virginia’s ability to stay on course with the transition to zero-carbon energy.

The House killed a companion to the Senate bill, but it did pass other legislation, HB 897, conditioning the tax exemptions on data centers achieving high energy efficiency, using increasing amounts of zero-carbon energy, and limiting their use of diesel backup generators. For that approach to have teeth, there needs to be a tax exemption.

Other data center legislation is on track to pass, but together these bills offered the strongest guardrails. If the final budget zeroes out the tax exemption without SB 619 passing the House, the General Assembly will be left with neither stick nor carrot to improve the operations of an industry that, with or without subsidies, will almost certainly continue to grow. 

That makes it critical for House and Senate budget conferees to look beyond the money. If they agree to phase out the tax exemption, they should make sure SB 619 makes it through the House and to the governor’s desk (something the House should do anyway, since the bill provides critical grid reliability safeguards). 

If, however, the conferees settle on some sort of partial exemption, they should condition it on data centers meeting the requirements of HB 897. 

Either way, the days of free money for America’s richest corporations should be over.

This column was originally published in the Virginia Mercury on February 25, 2026.