Virginia just took one of its biggest steps yet to rein in the explosive growth of data centers, approving a new energy consumption tax on the industry while also requiring tighter rules on water use and noise.
Because the state hosts the world's largest concentration of data centers, officials far beyond Richmond are paying attention to how it handles the industry, according to News from The States.
What happened?
A $0.011-per-kilowatt-hour charge for data centers is part of the two-year budget lawmakers wrapped up Monday, even as the plan left the industry's sales and use tax exemption in place.
Revenue from that tax is capped at $600 million a year, or $1.2 billion over the two-year budget cycle, and any collections above that amount would be returned.
Beyond taxes, the budget addresses long-running resident complaints tied to the spread of giant warehouse-style facilities, especially regarding water consumption and persistent noise.
Before 2032, data centers in future cooling-water scarcity zones and across the Eastern Virginia Groundwater Management Area will have to show they cut water used for cooling and moved to more efficient methods.
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The Department of Environmental Quality must identify those areas of scarcity by July 2027.
Separate sound rules are coming, too. DEQ has to set Virginia's first data center noise standard by 2029, and facilities that violate it beginning in 2030 could face fines of $32,500 per day.
Why does it matter?
Data centers power cloud computing, streaming, and artificial intelligence tools, but they also put intense pressure on local grids, water supplies, and nearby neighborhoods.
Even with the new levy, the bigger financial benefit still comes from the existing tax break: The industry's sales tax exemption is projected to save companies about $1.9 billion each year.
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Residents have raised quality of life concerns about that imbalance.
More power demand can strain the grid and increase pressure on utility costs, while heavy water use can heighten concerns about supply in drought-prone or fast-growing areas.
Noise limits could matter to people living near proposed or existing sites, especially as communities push for cleaner, quieter infrastructure.
Lawmakers also created a work group to study whether the tax exemption should eventually be phased out or otherwise changed so data centers pay their fair share.
What are people saying?
State Sen. Scott Surovell framed the budget as an opening move, telling News from the States, "We have more data centers than anywhere else in the entire world, and I think the entire country is looking to us to set policy on this, and we've taken the first step this year, in terms of generating some more revenue."
Others say the water rules still may not go far enough.
"My concern here always goes back to sufficient legal recourse because right now, we have plans and we've got minimalization, but what we don't have, in my point of view, is sufficient requirements," state Sen. Danica Roem said, per News from the States.
And state Sen. Richard Stuart blasted the decision to allow some evaporative cooling, asking, "If you're gonna evaporate 50% of the water into the atmosphere, how will we be conservative with water?"
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