Data center tax exemption debate heats up in Virginia

State lawmakers and labor unions disagree over whether to lift a state tax exemption that helps data center companies save over $1 billion a year.

Perhaps the biggest question facing Virginia lawmakers as they approach the end of this year’s legislative session is whether to make data centers pay more in taxes. 

Virginia Senate Democrats think it’s time to get rid of a tax exemption for data centers and use the money to help the state fund education and public transportation. They passed a budget bill that includes a provision to end the state data center sales & use tax exemption in fiscal year 2027, which is earlier than when it’s scheduled to end in 2035. 

Virginia Senate Majority Leader Scott Surovell told Dogwood on Saturday that the exemption established in 2010 was originally expected to save data centers about $1 million a year. But today, with Virginia home to the largest concentration of data centers in the world, the figure is well over $1 billion. 

Surovell said with Virginians’ electric bills going up as the proliferation of data centers strains the state’s electric grid, it’s time to make some of the wealthiest companies in the world contribute more. Sunsetting the exemption early would add nearly $1 billion back into Virginia’s budget, according to an analysis by The Commonwealth Institute for Fiscal Analysis. 

The House of Delegates version of the budget bill keeps the tax exemption in place. So, the two chambers need to come up with a compromise before sending a final bill to Gov. Abigail Spanberger. 

“The House of Delegates does not like the idea at all, but we also need to fund our government,” Surovell said in an interview. 

Last week, House Speaker Don Scott said he loved data centers, their impact on the economy, and the union jobs they produce, the Virginia Mercury reported. Scott spoke to a room full of members with the International Brotherhood of Electrical Workers (IBEW), whose members have helped build Virginia’s data centers. Local unions with IBEW in Virginia support keeping the tax exemption in place.  

Scott reiterated his position on Thursday to Radio IQ reporter Brad Kutner.

NOW @SpeakerDonScott on:

SCV👌 #redistricting vote: “the will of the people will bare our… the last thing @VA_GOP wants to 👀 is a Virginia voter” (After big wins in @vahouse)

Data centers: “we need to keep Virginia’s competitive advantage… we can’t throw 👶 out w/ 🛁” #valeg

— BK (@BradKutner) March 5, 2026

Virginia Diamond, president of the Northern Virginia AFL-CIO, said that ending the tax exemption for data centers risks Virginia losing out on thousands of union construction jobs and billions in tax revenue. She worries that ending the tax exemption would scare away new data centers and make companies less likely to invest in their current operations in Virginia. 

“The exemption is so much smaller than the amount of money that they’re paying to us,” Diamond said in an interview. 

But other labor unions disagree. 

Carol Bauer, president of Virginia largest teacher’s union, the Virginia Education Association, spoke at a press conference on Tuesday in support of getting rid of the tax exemption for data centers. 

Bauer said the money saved by lifting the tax exemption for data centers could be used to help address the staffing crisis in Virginia schools and give education workers fair and competitive pay. 

“We’re not against jobs, but for a tax code that works for everyday people and for communities to have the resources they need to thrive,” Bauer said. “When powerful interests get special carve outs that cost doesn’t disappear. It gets shifted onto working families and onto local communities trying to do more with less.”