Why It Matters
Virginia’s data center industry — one of the largest concentrations of such facilities in the world — sits at the center of a high-stakes state budget fight. The outcome will shape how the industry is taxed and regulated, what residential utility customers pay for power, and whether the state’s fiscal year closes on time before the June 30 deadline.
What Happened
House Speaker Don Scott, D-Portsmouth, unveiled the chamber’s budget proposal on June 12 in Richmond, with Appropriations Chair Del. Luke Torian, D-Prince William, at his side. The plan takes a notably softer approach to the data center industry than earlier proposals had contemplated.
A previous version of the budget had conditioned data centers’ eligibility for a state sales tax exemption on meeting specific environmental benchmarks — including restrictions on co-locating near carbon-emitting power facilities and requirements to use newer, more fuel-efficient backup generators. The new House proposal scraps those conditions entirely.
In their place, the budget establishes a commission tasked with studying the data center sector’s overall impact on the state, including the costs its energy demands impose on residential utility customers and how local governments might better capture tax revenue from the industry. The commission must deliver findings to the General Assembly by November 1.
Speaker Scott framed the commission as a path toward more durable policy, saying the timeline would give lawmakers a foundation “so the 2027 General Assembly can pass real national reform,” and left open the possibility of a special session once the report is complete.
By the Numbers
The financial stakes are substantial. Data centers in Virginia currently save an estimated $1.6 billion annually through the state sales and use tax exemption, which shields the industry from the standard 5.3 percent rate applied to most purchases.
The House is scheduled to debate the proposal on June 18, while the Senate is set to return on June 22, leaving roughly a week before the June 30 budget deadline. The commission, if created, would be required to report back by November 1.
Del. Torian highlighted the budget’s approach to fiscal restraint, saying it “comes through for Virginians in a real and meaningful way without introducing a single new tax.”
Zoom Out
Virginia’s debate reflects a tension playing out across the country as data center construction accelerates, driven by artificial intelligence and cloud computing demand. States that have attracted large numbers of facilities are increasingly scrutinizing the cost those facilities impose on power grids — and on ordinary ratepayers who may end up subsidizing infrastructure upgrades needed to serve energy-intensive operations. West Virginia residents have raised similar concerns about rising utility bills tied to increased industrial power demand.
The question of whether generous tax exemptions are still justified — given the industry’s scale — has emerged as a live policy dispute in several state capitals. In Virginia, that debate has fractured along intraparty lines as much as partisan ones.
Governor Abigail Spanberger has publicly backed retaining the data center tax exemption, while Senate Finance Chairwoman Sen. Louise Lucas, D-Portsmouth, has pushed to end it altogether. The House proposal threads that divide by preserving the exemption while deferring harder questions about industry accountability to the commission process.
What’s Next
The House floor debate set for June 18 will be the first major test of whether the chamber’s approach holds together. Once the Senate returns June 22, negotiators from both chambers will need to reconcile any differences before the June 30 constitutional deadline for a balanced budget.
The commission’s November 1 report would arrive during the run-up to the 2027 legislative session, giving lawmakers data to inform whether the exemption should be modified, conditioned, or left intact. Virginia’s broader fiscal picture has also shifted in recent months — the state’s revenue outlook improved by $1.5 billion earlier this year, though a budget agreement between the chambers has remained elusive.
Whether Spanberger would call a special session to act on the commission’s findings before the 2027 regular session opens remains an open question.