Data Center Sales Tax Exemptions by State: Thresholds, Pauses and Repeals (2026)

A data center sales tax exemption lets a qualifying facility, and often its tenants, buy certain equipment without paying sales or use tax. In Virginia, qualifying data centers and their tenants can buy computer equipment and related items tax-free.² In Texas, certain items essential to operating a qualifying data center are exempt from the state sales and use tax.⁵ Illinois’ program goes further, exempting qualifying data centers from a range of state and local taxes and adding a 20% credit on construction wages for projects in underserved areas.⁴

The exemption matters more for data centers than for most industrial projects because the taxable spend is large and recurring. Servers, storage and network gear are replaced on short cycles, so a campus buys its equipment several times over the life of the buildings. That is why the exemption is often the largest single line in a state incentive offer, and why it draws so much attention from legislators. In Virginia, the Joint Legislative Audit and Review Commission (JLARC) found the exemption saved data centers $928.6 million in fiscal 2023 and called it the state’s largest economic development incentive.²

Sales tax is separate from property tax, which is usually negotiated locally and covered in property taxes on data center projects. For the wider menu of incentives, see data center tax incentives, and for the glossary definition, see sales tax exemption.

Most programs tie the exemption to a minimum capital investment, a minimum number of new jobs and a wage test. The table summarizes several of the largest markets as of October 2026. Thresholds change, so confirm the current statute before relying on a figure.

Two patterns stand out. First, rural or distressed areas often get lower thresholds, which can tilt a search toward places with less competition for power and land. Georgia sets its tiers by county population, and Virginia cuts its investment threshold by more than half in distressed localities.⁸² Second, some states attach conditions beyond money and jobs. Illinois requires the facility to be carbon neutral or certified under a green building standard.⁴ State-specific detail is in the guides for Virginia, Texas and Georgia.

An exemption is rarely automatic. Most states require the owner or operator to apply, be certified and then report on performance. In Texas, the owner, operator or occupant applies on Form AP-233 with a proposed job creation schedule and capital investment plan, and must hold or apply for a sales tax or direct payment permit.⁵ In Virginia, applicants sign a memorandum of understanding with the Virginia Economic Development Partnership and file annual reports showing they met the investment, employment and wage requirements.²

Timing matters. Because pauses so far have applied to new applications, a project that is certified before a cutoff has generally kept its benefit, while one still in planning has not. Illinois’ pause stops the processing of new applications, and Arizona’s does not affect data centers already receiving the exemption.⁴⁶ Missing performance targets can trigger repayment under many programs, so the job and investment schedule should be realistic for the phased build, not the full build-out. A development agreement often carries the local side of these commitments.

Exemption costs have run well ahead of forecasts, and that has driven the change in 2026. Virginia forwent more than $1.6 billion in fiscal 2025, up 118% from the prior year, according to the state’s annual financial report.¹¹ A Virginia legislative staff overview put the value at $1.94 billion for fiscal 2025, including the local portion of the tax.⁷ In Ohio, the exemption cost more than $1.5 billion in 2025, about 11 times the state’s $136 million forecast.¹²

Pauses

On May 27, 2026, Ohio Governor Mike DeWine directed the Tax Credit Authority to stop considering new data center exemption requests while a legislative committee studies data center growth.¹⁰ Illinois stopped processing new Data Center Investment Program applications on July 1, 2026, under a June 5 directive from Governor JB Pritzker.⁴ Arizona’s budget imposed a three-year pause on new data center exemptions through June 2029, after Governor Katie Hobbs had sought full repeal, and she signed the pause into law.⁶¹³ S&P Global also lists Massachusetts and New Jersey among the states that paused programs; in New Jersey, the paused program is a $500 million tax credit for AI data centers.³

Repeals and narrowing

S&P Global counted Maine, Minnesota and Nebraska as having repealed exemptions between May and August 2026.³ Check what each repeal actually covers. Minnesota’s 2025 tax law repealed the exemption for electricity used by qualified data centers, effective for purchases after June 30, 2025,¹⁴ while the same bill extended the exemption for computers, servers, software and cooling equipment.¹⁵ Washington enacted a law in April 2026 that removed exemptions for replacement server equipment and limited them for data centers that qualify through refurbishment.³ Repeal is also on the table elsewhere: North Carolina’s governor has called for ending the state’s exemptions at the end of 2032, and Texas Governor Greg Abbott listed repeal among his 2027 legislative priorities.³

Not every proposal has passed. Bloomberg Law reported that lawmakers have mostly rejected wholesale repeal so far in 2026.¹⁶ Georgia is an example: Governor Brian Kemp vetoed a 2024 bill that would have suspended new exemption certificates, and 2026 bills proposed moving the January 1, 2032 sunset forward to 2027.¹⁷⁹ In Virginia, the 2026 budget directs a joint subcommittee to review the exemption and imposes a data center electricity consumption tax for fiscal 2027 and 2028, and the Senate has floated an impact fee rather than repeal.⁷³ Broader policy shifts are tracked in state data center legislation trends.

For a large AI campus, the sales tax exemption can be worth more over time than the land. But it is now a policy variable, not a fixed feature of a state. A few practical points follow from the 2026 changes.

• Certification date matters most. The pauses in Illinois and Arizona applied to new applications, not existing ones. A site where the project can be certified early carries less policy risk than one that needs years of entitlement first.
• Sunsets are real deadlines. Georgia’s exemption sunsets on January 1, 2032, and Virginia’s is scheduled to end in 2035.⁹⁷ Equipment refreshes after a sunset may be taxable unless the law is extended.
• State-only exemptions leave local tax in place. In Texas, local sales tax is still due on qualifying purchases, so the local rate belongs in the model.
• Exemptions do not offset power. A state with a generous exemption but slow or costly power can still lose on total cost. See tax incentives vs. power costs.
• Local politics follow state politics. Where an exemption is under debate, expect the same questions at county hearings. See public hearings for data center projects.

1. 01Confirm the current status with the state revenue or economic development agency, not just the statute. Administrative pauses, like Ohio’s and Illinois’, do not change the code.¹⁰⁴
2. 02Read the qualifying tests: investment amount and period, job count, wage standard, building size and any energy or certification conditions.
3. 03Check whether tenants can use the exemption, which matters for colocation and powered-shell projects.
4. 04Note the sunset date and any pending bills that would move it.
5. 05Confirm whether local sales tax is covered.
6. 06Map the reporting and clawback terms against a realistic phasing schedule.

Treat the exemption as one line in the site’s economics, alongside power, water, fiber and buildable land. Confirm the details with a state tax adviser and the economic development agency. When you want the whole picture on a specific parcel, get a site reviewed.