Interparty split on data center tax policy threatens Virginia government shutdown

RICHMOND, Va. (CN) — Virginia Democrats remain split on whether to grant data centers tax exemptions as a July 1 budget deadline approaches.

Speaker of the House of Delegates Don Scott held a press conference on Friday, urging the state Senate to consider a newly proposed budget that leaves in the hotly debated tax breaks.

“Families are waiting for a budget, teachers are waiting already, law enforcement is waiting already, firefighters, state troopers, public safety workers across the commonwealth, they are all waiting,” the Democrat said. “There is no worse feeling than going back to your community and telling the people who trusted you that we couldn’t get it done.”

The two chambers of the General Assembly remain deadlocked over whether to extend the sales and use tax exemption that helped make Virginia a global data center hub. The state has more than 660 active data centers and nearly 600 more planned. A 2024 report from the Joint Legislative Audit and Review Commission found Virginia accounted for 13% of reported global data center capacity.

Louise Lucas, president pro tempore of the state Senate and chair of the Senate Finance and Appropriations Committee, wants to end the exemption, arguing data centers should pay their fair share. The dispute has delayed completion of a state budget that lawmakers typically finalize in the spring. Tempers have flared, with Lucas recently dubbing Scott “Amazon Don” and Governor Abigail Spanberger the “Data Center Diva.”

“Virginia taxpayers should not be forced to subsidize some of the wealthiest corporations in the world,” Lucas said in a statement. “When over half of Virginia voters agree that these companies should pay their fair share, it is clear that the public understands what is at stake and not just from an economic perspective, but also the environmental concerns. Virginia families and small businesses are paying their taxes, and multinational data center operators should do the same."

Lucas cited a Washington Post-Schar School poll showing opposition to the tax breaks has grown. Among 1,101 Virginia voters surveyed, 56% opposed the incentives, up from 31% in 2023. The poll also found that 59% would be uncomfortable with a new data center being built in their community.

House Finance and Appropriations Committee Chair Luke Torian accepted $20,000 in 2025 campaign contributions from Micron Technology, $10,000 from the Data Center Coalition and $5,000 each from Amazon and CloudHQ.

Opponents of data centers argue that they cause strain on water supplies and the electrical grid, potentially driving up utility costs. Supporters counter that the industry generates jobs and tax revenue. A 2024 report estimated data centers contribute 74,000 jobs, $5.5 billion in labor income and $9.1 billion in annual GDP to Virginia’s economy, figures that have likely grown alongside the rise of artificial intelligence.

The House’s latest budget proposal would create a commission to study the data center industry’s direct and indirect costs and benefits. The commission would issue recommendations by the year’s end on addressing the industry’s financial, energy, air, water and noise impacts ahead of the 2027 legislative session.

“The question is how we fix it, but fix it responsibly in a non-disruptive way,” Scott said. “The answer is not to blow up Virginia’s families with a budget fight."

Spanberger signaled her support for the House proposal.

“This proposal creates a clear roadmap for evaluating the impact of the data center industry in Virginia and for reassessing the state’s incentives into the future, with a focus on fairness to ratepayers and the needs of local communities,” Spanberger said in a statement. “Looking forward, I am confident that the General Assembly will send a budget to my desk that I can review and sign — on time. Because there is no other option.”

The General Assembly voted in 2016 on a bipartisan basis to extend the tax breaks until 2035. Those on the House side worry that canceling them would hurt future business investments in the commonwealth. The issue doesn’t seem particularly partisan, with lawmakers from both parties expressing support for or opposition to the Senate’s proposal.

“Why would anyone want to spend 1.6 billion dollars subsidizing big tech companies when that money could go to public education, health care or tax relief for our constituents?” Lucas asked on social media. “This issue is uniting Democrats, Republicans and Independents, and I am proud to be your advocate!”

The House-proposed budget also includes a $225 million deposit into a fund aimed at mitigating potential federal cuts to programs like Medicaid. The budget leaves $600 million unappropriated at the close of the biennium. The report found data centers avoided paying the state $2.7 billion in sales and use taxes between fiscal year 2015 and 2024.

Lawmakers are slated to meet once more before the July 1 deadline on June 18 for the House and June 22 for the Senate.