Data Centers Won Billions in Tax Breaks. Some States Are Balking

For most of their lives in central Ohio, Ken and Carol Apacki have enjoyed driving the serene rolling farmland and quaint towns set along trickling streams.

Today, the Apackis barely recognize a large section of their driving route: a 9,000-acre business park that has seen dozens of windowless, beige-and-gray warehouses pop up, filled with data servers supporting tech giants including Amazon, Meta, and Google.

“Look how big that building is—how far it goes back!” Carol Apacki exclaimed from the back seat during a drive-by through the New Albany International Business Park last month, pointing to a data center that stretched toward the horizon. “It’s hard to see the end of it.”

And more are on the way, all to fuel the artificial intelligence boom.

The scale of the business park near Columbus illustrates the appeal—and the cost—of an increasingly lucrative deal states have struck with data center developers for sales tax exemptions lasting a decade or longer. That means state and local governments don’t see a dime from the purchase of construction materials or the equipment the facilities typically replace every three to five years.

Now, Ohio and other states are weighing whether to roll back those exemptions for future sites amid a boom in data center development and residents’ concerns about the resources required to power them: A single large data center can consume as much power as a mid-sized city and millions of gallons of water annually.

And the facilities create a small fraction of the permanent jobs traditional factories do, making them targets for politicians shaking the couch cushions for money to pay for income and property tax cuts.

Ohio, which has a 5.75% sales tax, expects to forgo $142 million in tax revenue it would’ve otherwise collected from data centers in the next fiscal year, more than seven times the $20 million it gave up in fiscal year 2019. The state now has nearly 200 data centers—fifth among all states—with capital investment of $40 billion supporting about 100,000 jobs, including indirect positions.

Seizing on what they said was growing skepticism among citizens like the Apackis, Ohio legislators passed a provision in last year’s state budget bill to scrap the exemption for future data centers.

Gov. Mike DeWine (R) vetoed the measure, but lawmakers have until the end of this year to override him.

State Sen. Louis Blessing III, a Republican who led the bipartisan effort and chairs the Ways and Means Committee, predicts it will come to a vote. He’s also drawing up bills to go further by imposing a moratorium on new data centers that don’t build their own power sources, and assessing a user fee that would give the state another revenue stream.

“It’s like: Wait a minute,” Blessing said. “Why do you need a sales tax exemption on something like this when you’re in this state and you’re going to be consuming huge amounts of electricity and water?”

Unforeseen State Costs

Data centers have been around for decades, but the race to dominate AI has fueled their proliferation. More than 4,000 now dot the US, and competition among state and local governments to lure them remains fierce.

About three dozen states have some form of sales tax break for data centers that meet certain investment and job-creation metrics.

Unlike other economic incentives, the true cost of sales tax exemptions is notoriously difficult to measure and predict, especially for a rapidly growing industry. What is clear is that states that allow such breaks lose potential revenue every time a data center buys something, including server racks, power equipment, cooling and ventilation systems, or fire-protection equipment.

In Virginia, the world’s largest data center market, sales tax exemptions for data center sites cost the state $1.6 billion in fiscal year 2025—about 16 times initial annual projections from a few years ago, the state found last month.

Texas also surpassed $1 billion in exemptions in fiscal 2025 after the state initially estimated it would lose only $130 million. In Georgia, the cost of exemptions jumped to $625 million this year from $10 million in 2020, and Illinois’ foregone revenue soared to $370 million from $10 million over the first four years of its program.

“It’s a very different beast than anything else we’ve seen before,” Kasia Tarczynska, senior research analyst at Good Jobs First, an advocacy group that tracks state and local subsidies, said of the trend. Her group has called for ending the data center tax breaks.

Unlike a typical manufacturing plant that includes hundreds of on-site jobs, data centers create “very few jobs and very little economic development,” she said.

Uneven state reporting—and confidential negotiations on the front end between privatized state agencies and freshly formed LLCs that obscure the data center’s true owners— only complicate the picture of whether exemptions are the best investment of tax dollars, she added.

State capitals are beginning to look more closely at the issue. The National Conference on State Legislatures last month reported that early bill filings suggest state data center incentives will be a top issue for statehouses in 2026.

Georgia’s Republicans vowed last week to target their state’s program to help pay for income tax cuts. Gov. Brian Kemp (R) had vetoed a measure to do that in 2024.

Michigan lawmakers are pursuing bipartisan legislation to repeal a sales tax exemption the legislature approved less than two years ago.

A New Jersey bill would prohibit data centers from entering into nondisclosure agreements that hide details of the development plans from the public.

Virginia Gov.-elect Abigail Spanberger (D) has promised to address data centers’ strain on the power grid; New York’s legislature and Gov. Kathy Hochul (D) are also eyeing new restrictions.

The increased attention comes as states face tougher budget battles thanks to the end of pandemic-era relief and last year’s federal tax bill.

“There’s a big storm coming for state budgets,” Tim Storey, NCSL’s executive director, told reporters last month. “It’s going to mean some hard choices.”

Ohio’s budget bill, covering fiscal years 2026 and 2027, included a provision ending the data center exemption in part to lower income taxes for people claiming more than $100,000 in earnings annually. (The budget also proposed ending tax breaks for newspapers, printed advertising materials, and the sale of motion pictures to movie theaters—all of which DeWine vetoed.)

And last month, DeWine signed tax law changes that will save property owners $2 billion in three years but raised concerns about local school districts and services funded by those taxes. The new law was aimed to stave off a possible ballot initiative this year that would abolish all property taxes in Ohio, a move DeWine warned would be a “grave mistake” and force the state to hike sales taxes across the board.

Scaling Up

Ohio’s sales tax exemption, created in 2013, drew the attention of Amazon Web Services the following year. As demand soared for cloud computing services, the company selected a site in the New Albany business park, where the city had installed fiber-optic cables to attract tech companies and diversify its economy.

The full or partial exemption applies to both the state’s 5.75% sales tax and counties’ sales taxes, usually another 1% to 2%. (In Licking County, which includes the New Albany park, it’s 1.5%.) To qualify, companies must invest at least $100 million at the site over a three-year period and maintain an annual payroll there of $1.5 million. There’s no cap on how many agreements the state can sign or how much revenue it can forgo.

Amazon, under an affiliate called Vadata Inc., signed an agreement in 2014 for a full sales tax exemption that could last through 2055. That was initially estimated to cost Ohio $77 million in uncollected tax revenue. With data center expansions, the state could end up foregoing 20 times that much—without additional public scrutiny and high hurdles to ever claw it back, according to Zach Schiller, research director at Policy Matters Ohio, an advocacy group opposing the subsidies.

“Amazon was pretty farsighted in this,” Schiller said.

Amazon’s arrival opened the floodgates for other data centers in New Albany—and for more tax exemptions.

Meta, through an entity called Sidecat LLC, got a full exemption in 2017, and Google, under the name Montauk Innovations LLC, got one the following year.

Spokespeople for Amazon, Meta and Google didn’t respond or declined to comment for this story.

Data center developers Quality Technology Services, CyrusOne Management Services, EdgeConneX, and Vantage Data Centers also moved in with full or partial exemptions.

It’s a well-worn path: Companies interested in state tax incentives first connect with JobsOhio, the state’s economic development agency. JobsOhio, after a private negotiation and review of the proposed project, then recommends a tax incentive for approval by the Ohio Tax Credit Authority, a five-seat board appointed by the governor and legislature, where the incentives become public.

The tax credit authority has approved 19 active sales tax exemption agreements worth about $549 million at the time of signing, according to a Bloomberg Tax analysis of state data, meeting minutes and annual reports.

The recipient companies promised to invest a total of $13 billion in the state and create 496 jobs, according to the agreements.

In New Albany, data center developers, like other companies, bought more land than they needed at the time, to leave open the possibility of future expansion. That strategy has paid off during the AI boom, with data centers now forming a major part of the business park and contributing to its “Silicon Heartland” moniker.

Data centers have quickly filled the park while the park’s high-tech crown jewel, a $28 billion Intel chip-making plant, has faced construction delays. This year, the New Albany park could see completion of Meta’s Prometheus, one of several gigawatt-scale data center clusters the company plans. CEO Mark Zuckerberg has boasted that one will span a tract almost as big as Manhattan.

‘Awesome’ revenue

The industry’s backers argue the benefits of attracting a data center greatly outweigh what a state loses in uncollected tax revenue.

A sales tax exemption can sway a company weighing similar locations in multiple states because it defrays upfront capital costs and allows companies to commit to long-term investments, said Dan Diorio, vice president of state policy for the Data Center Coalition, an industry trade association.

While a typical data center may employ only 10 or 20 full-time employees, the facilities hire local electricians, plumbers, and HVAC techs to regularly service and upgrade the building, Diorio said.

“If you go to any data center parking lot, you’ll find it full,” he said. “That’s a local business in the community—a local contractor—that has consistent, reliable, high-paying work on that facility to keep it running at optimal levels at all times.”

Ending the sales tax exemption would cut data center job creation and capital investment by roughly one-third, according to a report released last year by the Ohio Chamber of Commerce Research Foundation.

Even with restored sales tax collections, total fiscal inflows would be about $500 million lower with the loss of other tax revenue generated by the projects, it found.

In issuing a line-item veto of the sales tax breaks, DeWine cited billions of dollars in construction work already underway. The exemption “is important as Ohio competes with other states for technology jobs and capital investment,” the governor wrote.

That includes the local benefits for communities that host data centers.

New Albany collects a special assessment from its data centers based on property valuations that can run as much as three times the price per square foot compared with regular office space, said Jennifer Chrysler, New Albany’s community development director since 2005.

That revenue, $10 million collected last year, helped to fund a police station expansion, a new veterans’ memorial, and a natural space with walking trails and a playground, she said.

On a frigid December afternoon, orange-vested workers in hard hats filled their tanks at the Dutchess gas station and lined up for lunch at the McDonald’s, two businesses that have sprung up at the center of the business park in the last few years. Amazon Web Services now sponsors litter clean-up on the main highway bisecting the park.

Concrete foundations, soon to house more servers, rose from the snow-covered fields, while existing data centers sprawled from behind security fencing. The park now has 68 data center buildings that are either complete or under construction, covering 14.5 million square feet over more than 3,000 acres, according to city officials.

“I compared it to the building of the pyramids,” said Anita Lopez, a Lucas County commissioner from northwest Ohio, describing the scale of the development she saw when she visited the New Albany park in October.

That was a fact-finding mission; Lopez’s region is wrestling with its own proposals. She said the facilities could fund budgets in suburban and rural areas strained by an influx of people moving out of Toledo. The alternative might be a tax hike or another major development to contribute to the tax base.

“If it’s not data centers that are going to come, something needs to come,” Lopez said.

Chrysler, the community development director, said that if Ohio were to end its sales tax exemption—or the AI bubble were to burst—New Albany is now diversified enough to handle it.

Long-term planning “has helped us kind of be able to pivot if we need to pivot,” she said. “But it’s helped us also establish some pretty awesome sources of revenue.”

A Value Question

At its monthly meeting in December, the Ohio Tax Credit Authority met in a 19th-floor conference room across from the State Capitol in Columbus. It heard short presentations from economic development officials and unanimously voted to approve tax incentives for a range of companies.

The approvals included a 10-year, 50% sales tax exemption for Denver-based Crusoe Energy Systems to build a data center in Springfield, a city of roughly 50,000 people about 30 minutes north of Dayton.

Jeff Gord, project manager at the Dayton Development Coalition, told the authority the credit was a “major factor” in choosing the Ohio site over locations in Minnesota, Texas, California, and Wyoming. Crusoe plans to invest about $444 million and create 20 jobs there by the end of 2028.

But questions are growing elsewhere around Ohio.

Jerome Township, which is home to Amazon data centers just northwest of Columbus, imposed a nine-month moratorium on new facilities so it can review its zoning requirements.

Lordstown, in northeast Ohio, initially banned data centers in November but changed that to a six-month moratorium after a developer filed a lawsuit to force the village to consider its project.

One of the tax credit authority members, Joy Evangelista, said she felt “some heartburn” about the local effects of data centers consuming so much energy. The authority generally approves tax incentives for projects that have community support and vetting from staff at the Ohio Department of Development and JobsOhio, Evangelista said. But the state’s openness to data centers may require some changes, she said.

“I would be supportive of the legislature placing guardrails on the tax incentives,” said Evangelista, executive director of the Hocking County Community Improvement Corporation in southeast Ohio.

State Rep. Thad Claggett, a Republican whose district includes the New Albany business park, said he can see both sides of the issue, but declined to say if he would support ending the tax break. “I’m going to make that decision with data at the time,” he said.

The AI boom will “prove to be a very good thing,” he said. “Now, are there some problems in the short run? Well, of course there are. And so that we have to deal with and think through that and help our folks and protect them.”

Blessing expects to see more pushback after introducing his proposals to curtail the data center explosion.

“I don’t want to be seen as the state that’s the data center capital of the world,” he said. “I don’t know what our citizenry gets for something like that.”

Neither do the Apackis. Their scrutiny of the business park expansion began with air quality concerns over the Intel chip plant. Now they’re worried about the impact from fossil fuel power plants needed to power the data centers.

Said Kenneth Apacki: “I would encourage the state to be the leader and start the trend of not giving tax breaks to entice companies to build their plants in Ohio.”