Data center tax exemption is 60% of Virginia incentive spending
JLARC's 2026 incentives report puts the data center sales tax exemption at about $4.06 billion of $6.8 billion in incentive spending since fiscal 2016.
Virginia's sales and use tax exemption for data centers accounted for about $4.06 billion, or 60%, of the $6.8 billion the state spent on 99 economic development incentive programs from fiscal 2016 through fiscal 2025, according to the Joint Legislative Audit and Review Commission's Economic Development Incentives 2026 report (Report 623), dated Nov. 9.
The annual cost has grown quickly. JLARC puts the exemption at $1.4 billion in fiscal 2025, or 78% of that year's incentive spending, and says it is 16 times larger than the next-largest incentive, the manufacturing single sales factor apportionment. The report notes that the $4.06 billion total covers only fiscal 2021 through fiscal 2025 because the reporting method changed.
On returns, the report finds the data center exemption supports 29 jobs per $1 million of spending, compared with 32 for all incentives combined and 131 for grants. The state recovers 22 cents in revenue per $1 spent on the exemption, versus $1.29 for grants and 26 cents for all incentives combined.
JLARC also lowered its estimate of how much the exemption drives where data centers locate. The report attributes 50.2% of data center location and expansion decisions to the exemption, replacing an earlier assumption of 90% or more, which it ties to newer empirical research.
The report's method counts only the state share of the tax. It excludes local option and regional sales taxes and applies an effective state rate of 4.28%, after the dealer discount, to exempted amounts. Local tax revenue from data centers is outside its scope.
The exemption is by far the state's largest business incentive, and the report puts numbers on what it costs and returns as lawmakers weigh data center bills ahead of the 2027 General Assembly session.
What's next
- January 2027 General Assembly convenes
Sources
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