Virginia budget heads to Spanberger with $1.2 billion tax on power-hungry data centers

Virginia's next budget is approaching the finish line, and one of the most closely watched pieces involves the state's power-hungry data center industry.

Gov. Abigail Spanberger now has the spending plan in front of her, with a temporary tax on electricity used by data centers standing out as one of the agreement's headline items.

What happened?

Included in the budget lawmakers approved after weeks of wrangling is a temporary tax on data center electricity use, according to WJLA. The outlet said the measure could bring in about $1.2 billion over Virginia's two-year budget cycle.

Rodrigo Soto, with the Commonwealth Institute for Fiscal Analysis, told the outlet that disputes over data center taxation were a major factor in drawn-out talks.

"I think many of us have heard about the ongoing data center tax exemption debate that has really stalled negotiations," Soto said, per WJLA.

The broader question of how Virginia should tax the industry remains unresolved. Soto said lawmakers added language requiring more review of possible changes, including, WJLA reported, whether to end the existing sales and use tax exemption for data centers.

Soto said that the exemption cost Virginia nearly $2 billion in lost revenue last fiscal year.

Why does it matter?

If the new tax brings in as much money as expected, that revenue could help fund major priorities. Soto said that once lawmakers settled the revenue question, they could move ahead with health care and education spending, WJLA reported.

The budget includes $150 million to lower Affordable Care Act plan costs.

Soto also said the state is investing in free clinics and federally qualified health centers, which could become even more important if federal health coverage cuts push more Virginians out of the ACA marketplace or Medicaid.

Before the budget is finalized, Spanberger is expected to send back amendments, and lawmakers are to vote on those changes so a full budget can be in place by Wednesday.

What are people saying?

Soto said the broader conversation around the industry is far from over.

"There's ongoing conversations about how we can ensure that the data center industry pays their fair share of taxes," he told WJLA.

He also pointed out the remaining budget revisions may not all be dramatic, noting that some of Spanberger's changes could be technical while talks continue between state leaders.

"I do think that there is ongoing conversations between both chambers of the legislature and the governor's office," he said, adding that a delayed budget "is actually not totally out of the ordinary."

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