Sales tax breaks to lure data centers booming in Virginia

RICHMOND, Va. — As Virginia has emerged as a top global market for data centers, tax breaks to attract some of the world’s richest companies to the state have exploded, new records show.

Enacted a decade ago, sales and use tax exemptions for the large warehouses full of computers that function as the brains of the internet accounted for more than $65 million in uncollected state revenue last fiscal year, by far the biggest type of tax break the state offers.

Amazon, a major player in the data center industry, owns five of the 25 data centers eligible for tax breaks. Other major tech and financial companies with data centers are also eligible, including Microsoft, Capital One, Bank of America and Visa.

The incentives can also apply to tenants at certain data centers, which include major companies like Alibaba, Facebook and Apple.

Supporters say the incentives are a crucial reason for Virginia’s success in the market and the industry is a major boost to the state’s overall economy. Critics say the tax breaks are an unnecessary giveaway to a healthy industry that would still thrive in Virginia without them.

States are increasingly offering lucrative incentives to attract the data centers, which can cost hundreds of millions of dollars to build and equip, but employ relatively few workers. That means they produce little in the way of new income taxes but could provide a surge in property and sales taxes for both state and local governments, if they collect them.

Although Virginia forgoes sales and use tax revenues for certain large data centers, some local governments have reaped massive benefits. Loudoun County says data centers help bring in $150 million in local taxes each year.

The Virginia Economic Development Partnership tracks companies eligible for the tax breaks but said it doesn’t collect data on which companies actually take the credits and for how much. VDEP’s records from January show all but one of the 25 data centers eligible for the tax breaks are in Northern Virginia and the Richmond area, or within an easy drive.