Virginia has become the first U.S. state to tax data centers directly on the electricity they consume, a move aimed at making the booming industry contribute more to state coffers without dismantling the incentives that helped build it.
The measure, folded into a roughly $207 billion biennial budget passed by the General Assembly on June 22, sets a consumption tax of $0.011 per kilowatt-hour on the power used by each data center, applied monthly. It is scheduled to take effect July 1, 2026 and now awaits Governor Abigail Spanberger's signature. The tax covers grid power, competitive retail suppliers and self-generated, behind-the-meter electricity.
The levy is capped at $600 million per fiscal year, with any collections above that returned to operators in proportion to what they paid. Lawmakers expect it to raise about $1.2 billion over two years for the general fund — equal, by one estimate, to roughly a 10% increase in the industry's effective electricity rate.
The incentive that stays
Crucially, lawmakers left intact Virginia's retail sales-and-use tax exemption on data center equipment, which the trade group MultiState estimates is worth about $1.6 billion annually. That break — administered by the Virginia Economic Development Partnership — waives sales tax on servers, storage, cabling, cooling and generators for facilities meeting investment and job thresholds, and runs through mid-2035.
Whether to keep that exemption deadlocked the budget for months. Senate leaders resisted putting data center tax breaks "ahead of hard-working Virginia families," while House leaders defended the union construction jobs the industry supports. The new power tax emerged as the bridge between those positions.
Why Virginia
Northern Virginia's Loudoun County, known as "Data Center Alley," is the densest concentration of data centers in the world, with more than 200 facilities through which a large share of global internet traffic routes. (The often-cited claim that the figure is around 70% traces to county promotional materials and is not independently audited.)
That concentration has collided with the grid. Dominion Energy, the state's dominant utility, has described the surge as the largest jump in power demand in decades, with data centers the biggest single driver — and the AI build-out, the same wave of capital spending reshaping the cloud and chip sectors, is accelerating the load. Critics warn that the cost of new transmission lines and power plants can be passed through to ordinary households; supporters counter that data centers deliver jobs and tax revenue, and that the new levy is an offset rather than a reversal of state policy.
What happens next
If signed, the tax takes effect July 1, with the State Corporation Commission collecting it monthly and issuing guidelines within 60 days. Lawmakers carried dozens of other data center bills — covering siting, noise and how to allocate grid-upgrade costs — into the 2027 session, leaving Virginia's broader reckoning with the industry unfinished.
