Virginia Audit Finds Data Center Tax Breaks Cost Billions

The Joint Legislative Audit and Review Commission (JLARC) reported that Virginia spent more than $4.05 billion on a sales and use tax exemption for data centers over the five years ending June 30, 2025. This specific incentive, which allows companies to avoid a 5.3% tax on computer system replacements, accounted for 60% of the $6.8 billion in total business incentives provided by the state over the last decade.

Findings indicate the exemption is fiscally inefficient, generating only 22 cents in state tax revenue for every dollar saved by companies. Between fiscal 2021 and 2025, data centers saved an average of $811.5 million annually, while the resulting activity generated approximately $179.4 million in annual state taxes, creating a yearly deficit of $632.1 million. While the program supported 18,130 jobs, JLARC noted it is less effective for job creation than state grant programs.

JLARC has significantly revised its estimate of the incentive's influence, now assuming only 50% of data center activity is driven by the exemption, down from previous estimates of 90-100%. State Senator L. Louise Lucas has called for the end of the exemption, arguing that Virginia's other infrastructure and offerings are sufficient to attract the industry. Although lawmakers maintained the exemption in the most recent budget, they added an energy consumption tax and plan to revisit the policy during the January legislative session.