US States and Cities Overhaul Data Center Tax and Zoning Laws

State and local governments across the United States are revising tax policies and zoning laws as data centers become political flashpoints due to high energy demands and limited job creation. While 38 states currently offer tax abatements, 13 have considered repealing these incentives. Some jurisdictions are adopting repeal-light strategies that narrow eligibility or pause new approvals. Virginia recently compromised by extending sales tax exemptions until 2035 while introducing a first-in-the-nation excise tax of 1.1 cents per kilowatt hour on data center energy use, capped at $600 million.

Local governments in the South and Midwest are struggling to regulate rapid expansion. In St. Joseph, Missouri, the City Council implemented a 30-day pause on new applications to develop zoning regulations. Other regions face legal and legislative hurdles; West Virginia's Power Generation and Consumption Act of 2025 strips local zoning powers, and Hill County, Texas, recently rescinded a moratorium following a $100 million lawsuit from a developer.

Environmental and health concerns are driving new oversight. In Pennsylvania, Lackawanna County commissioned a $165,000 study to assess the cumulative health effects of these facilities. Commissioner Bill Gaughan has unsuccessfully urged Governor Josh Shapiro to implement a state-level moratorium, arguing that the cumulative burden of these facilities is what matters most for public health.