More than 10 states pause or cancel data center tax exemptions

Ohio exemption reached $1.5 billion, more than 10 times original projections

Over a decade ago, Ohio lawmakers exempted tech companies from sales taxes on computer servers and other equipment needed for data centers, betting that changes worth millions of dollars would lure much-needed investment to the state. The exemption worked, turning Ohio into one of the leading destinations for data centers — until the artificial-intelligence boom supersized it.

The data-center sales-tax exemption grew to more than $1.5 billion last year, over 10 times the original state estimate, according to The Wall Street Journal. Voter outrage after Signal Ohio reported the scale of the provision prompted Republican Governor Mike DeWine to pause new applications for the sales-tax exemption in May.

Now, some state lawmakers, including Democratic Representative Tristan Rader, want to repeal the sales-tax exemption and renegotiate past deals with companies such as Amazon.com, Meta Platforms, and Alphabet’s Google that secured exemptions for decades by signing contracts with the state. In several states, the exemptions for tech giants have exceeded $1 billion annually. Rader represents parts of Cleveland, where locals have pushed back against the facilities, and he hopes the new threats force the companies to the negotiating table. “They seem to have more money than God and they’re able to build without the need for these types of incentives,” Rader said. He is proposing new data-center taxes and requirements that developers pay more for power and electrical infrastructure.

The reversal is playing out across the country. Legislators or governors in more than 10 states, including Illinois, New Jersey, and Washington, have slammed the brakes on the tax breaks. New Jersey signed off on a half-billion-dollar tax credit for data centers in 2024 after a unanimous state Senate vote; last month, the state canceled the remaining $250 million after a 35-4 senate vote in the opposite direction. Dozens of other states, including Texas, have proposed similar bills or steps, potentially costing the industry billions in tax benefits.

Even states that are keeping their exemptions are taking steps to make tech companies pay more. Virginia, the state with the most data centers, recently passed a tax on electricity consumed by data-center operators while preserving its sales-tax exemption for equipment.

The reversals could push future data-center projects to states such as Indiana, West Virginia, and Wyoming that have retained favorable tax regimes, industry executives and advisers said. Industry advocates are telling state officials that the other taxes the companies pay fund local schools and police departments and that eliminating incentives will force data centers to move elsewhere. NetChoice chief executive Steve DelBianco, whose tech-industry group fights regulation, said the backlash is based on misinformation and that he has warned state officials that eliminating incentives would hurt their economies. “Our industry has been knocked on our backfoot,” DelBianco said.

President Trump has urged voters to welcome the facilities despite recent polls showing Americans overwhelmingly don’t want data centers near them. “If you want to get rich as a state or as a town and if you want to pay lower taxes, if you want to create tremendous wealth, if you want your house to be more valuable and everything else, you’re going to want a data center,” he said Friday. “If you want to go through poverty, crime, and squalor, I would say don’t approve data centers.”

Amazon said it has invested nearly $40 billion in Ohio data centers since 2015, creating thousands of jobs, and paid almost $11 million in state property taxes and fees last year. Meta and Google declined to comment, as did DeWine’s office.

The assault on tax provisions is the latest example of the nationwide rebellion against AI driven by fears about power and water consumption, a dynamic candidates are watching closely ahead of November’s elections. A city council member in Independence, Missouri, John Perkins, was recently voted out of office after he voted to approve billions in tax incentives for a data center.

The sales-tax treatment is a crucial piece of data-center financing because the computer chips and servers inside the facilities represent a significant chunk of projects’ costs, and because that equipment gets replaced every few years. Avoiding the tax, often 6% or 7%, on hundreds of millions or billions of dollars of equipment helps determine where a data center goes, industry executives said. More than 35 states offer sales-tax exemptions or similar benefits to data-center developers.

Ohio’s effective tax rate on data centers, including its incentives, was 1.2% as of the end of 2025 — the lowest of 15 states analyzed by the Quantitative Economics and Statistics team at accounting firm EY. California, at the other end of the scale, had an effective tax rate of 16.9%.

Federal tax changes have also improved the economics of the build-out. Last year’s Republican tax law brought back immediate deductions for equipment purchases that would otherwise be depreciated, and future centers may be able to use the Opportunity Zone program, which will soon offer enhanced tax breaks for certain rural investments.

The frenzy following the launch of ChatGPT in late 2022 and hundreds of billions of dollars of tech investments made the exemptions much more lucrative, catching many states off guard and prompting a quick backlash. “It definitely happened in hyperspeed because of hyperscaling,” said Tim Schram, who specializes in state and local taxes at accounting firm BDO. Ian Boccaccio of tax firm Ryan, who advises data-center clients, said Ohio, Arizona, and Illinois have become less attractive after pausing or axing exemptions. In the long run, Boccaccio said, the facilities offer too many benefits for governments to pass them up. “This is a passing fad,” he said, “and in two years we won’t have these issues with data centers.”

The reversal extends a fight MSI previously documented in earlier reporting, when Democratic voters in swing states rallied against party leaders supporting the facilities and New York enacted a one-year statewide pause on new construction.