States rethink data center tax breaks. States that once used generous tax incentives to attract data centers are facing growing costs, reports The Wall Street Journal. Ohio’s sales tax exemption for tech company purchases of computer servers and other equipment grew to over $1.5 billion last year, more than 10 times the state’s original estimate. Gov. Mike DeWine (R) paused new applications for the sales tax break in May. Lawmakers in at least 10 other states including Illinois, New Jersey, and Washington are ending similar tax breaks, and dozens of other states’ lawmakers are considering legislation to end them.
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According to the Wall Street Journal, Governors in at least 10 states have “slammed the brakes” on Data Center tax breaks, including Illinois, New Jersey and Washington, thereby pushing developments into still-friendly states like West Virginia, and Wyoming.
Proponents are argue that the large local taxes they still pay could be massively beneficial to local communities, schools, roads, and services like Fire/Rescue.
Center on Budget and Policy Priorities:
These subsidies are costing each of ten states over $100 million in lost annual revenue; annual losses in Texas and Virginia each top $1 billion. And at least 14 states don’t disclose the costs. In addition to the revenue loss, states must ameliorate data centers’ negative impacts on energy and water affordability, health, and the environment of host communities, which are disproportionately communities of color.
During 2026 sessions, lawmakers in some states began chipping away at subsidies for data centers — especially the large “hyperscale” data centersneeded to run artificial intelligence and other large-scale machine learning programs. At least 25 states introduced bills to repeal or restrict data center tax subsidies, but such legislation passed in only eight states. Maine was the only state to enact legislation fully repealing all available tax subsidies. (See map.)
Additionally, governors in Illinois, Massachusetts, and Ohio paused their data center-specific tax subsidy programs and the governor of Nebraska blocked data centers from accessing subsidies through the state’s main business incentives program. These efforts are temporary and have less staying power than a legislative change, they may lay the groundwork for further action and give lawmakers time to catch up to the growing public concern about subsidizing data centers.