Taxes and Incentives: Who Gives Up What

States waive sales tax on data center equipment. Counties cut property taxes. And sometimes the two sides skip the normal tax bill entirely and negotiate a payment instead. Each one is a decision to give up revenue in hopes of getting more back. Whether that bet pays off is one of the most argued questions in the whole subject, and there is real evidence on both sides.

Sales tax exemptions

The servers inside a data center are replaced every few years. Each refresh is hundreds of millions of dollars of taxable equipment. That makes a sales tax exemption on servers worth far more over time than it looks on day one, because it applies again at every refresh.

Idaho's version

Idaho Code 63-3622VV, passed in 2020, exempts eligible server equipment and new data center facilities from sales and use tax. The statute lists servers, storage, chillers, generators, cabling and enabling software. To qualify, a company must invest at least $250 million in Idaho data centers within five years of starting construction and create at least 30 new full-time, nonseasonal jobs within two years of opening, paying on average at least the county's average weekly wage. A provisional exemption applies during the investment period. If the company misses either target, it owes the waived taxes. Property that has received benefits under the Idaho Reimbursement Incentive Act is not eligible.

Thirty jobs for $250 million is a low bar compared with most incentive programs. Supporters say that is the point. Data centers are capital-heavy by nature, and the state is after the tax base and the construction spending. Nobody expected a payroll like a factory. Opponents say the exemption grows with every server refresh while the job count stays flat.

Virginia's measured results

Virginia's exemption is the most studied. Its Joint Legislative Audit and Review Commission examined data centers in a 2024 report and compared the exemption with other state incentives in a 2025 review. Figures as reported in a June 2026 Cardinal News opinion column by Dwayne Yancey, the site's founding editor:

• Revenue forgone: about $1.9 billion a year, up from $928 million in fiscal 2023 in JLARC's 2024 report. (A June 2025 CNBC analysis estimated more than $730 million for fiscal 2024, below JLARC's earlier figure; estimates differ, so name the source and year with any number.) A state audit put fiscal 2025 at about $1.6 billion versus about $1.94 billion in operator self-reports, according to independent researcher Tommy Turner in an October 2026 Cardinal News opinion piece.
• Per $1 million exempted: 84 jobs, $10.0 million in GDP, $6.1 million in personal income.
• Other state revenue returned: about 48 cents per dollar exempted, versus 17 cents for other exemptions.

So the same study supports two opposite talking points. "Best tax exemption in the state" is true. "Returns less than half its cost in state revenue" is also true. When you cite it at a meeting, in testimony or online, give both, and say which question each number answers. Expect the other side to know the number you left out.

Other states

CNBC reported in June 2025 that 16 states granted nearly $6 billion in data center exemptions over five years. Washington gave Microsoft $333 million in sales tax exemptions from 2015 to 2023. One Microsoft site in Illinois received more than $38 million in exemptions and created 20 permanent jobs, which works out to about $1.9 million per job (dividing one figure by the other). Some states have begun pulling back or attaching conditions, as Idaho's unpassed 2026 House Bill 609 tried to do with full-cost electric rates and water notice.

Property tax: abatements and PILOTs

Data centers can be a county's largest taxpayer. Buildings, land, transformers and in many states the computer equipment itself are taxable personal property. JLARC found that in five Virginia localities with mature markets, data center revenue ranged from under 1 percent to 31 percent of total local revenue.

Idaho's main large-investment property tax break is the New Capital Investments Incentive Act, Idaho Code 63-4502. A taxpayer that makes at least $1 billion of qualifying investment in one county within 84 months gets an exemption on net taxable value above $400 million in that county. The unpassed 2026 HB 609 would have made it either this break or the sales tax exemption, not both.

A PILOT replaces some or all property tax with a negotiated payment. It can give a county predictable revenue and a company a predictable bill. It can also lock in a low rate for decades. In Virginia, Turner reported that Botetourt County's deal with Google caps the effective equipment tax rate at $2.40 per $100 for 20 years per building, alongside promises of $1 billion and 50 jobs per data center. Read every PILOT for its term, escalator, what happens if the company sells, and how payments split among the county, schools and special districts. School districts sometimes lose more than the county that signed.

Incentive	Who grants it	Who gives up revenue	Questions to ask
Sales tax exemption on equipment	State legislature	State (and local option taxes, where shared)	Annual cost? Does it renew with each server refresh? Clawback?
Property tax abatement	State law, county applies	County, schools, districts	Term? Which taxing districts lose? Value threshold?
PILOT agreement	County or development authority	Depends on the split in the agreement	Escalator? Transfer on sale? Default terms?
Discounted utility rate	Utility, approved by commission	Other ratepayers, if below cost	Does the rate cover cost of service?

Net fiscal impact: the strongest arguments both ways

The case that incentives pay: a data center needs few public services. No students, little traffic after construction, few police calls. Property tax on a $1 billion building and its equipment is large even after abatement. JLARC's ranking of the exemption as Virginia's highest-scoring tax exemption, and its 84 jobs per $1 million, are the best evidence on this side.

The case against: most of the economic activity is construction, which ends. JLARC's 2024 report said most of the industry's economic benefits come from the construction phase rather than operations. The state recoups less than half the exemption in other revenue. And the "but for" problem looms. Turner, citing a University of Georgia Carl Vinson Institute study, reported that only about 30 percent of Georgia's data centers could be attributed to its exemption; the rest would likely have come anyway. If that holds elsewhere, most of the exemption goes to projects that would have come anyway. Supporters read the same study the other way: by that estimate the exemption still brought in nearly a third of Georgia's data centers, each of which pays property tax for decades.