Something that has never happened before is now happening in multiple states simultaneously.
Three states — Ohio, Arizona, and Illinois — have all suspended their data center sales tax exemptions in 2026. Virginia created a new energy consumption tax on data centers last month. Texas is outlining plans to repeal its own exemption in 2027. Utah's governor issued an executive order restricting data center development.
Arizona, Illinois, and Ohio have all paused data center tax incentives in 2026. Arizona enacted a three-year moratorium on its data center sales tax exemption through a budget that runs from July 1, 2026, until June 30, 2029. Illinois Governor Pritzker directed the state's Department of Commerce and Economic Opportunity to pause tax incentives beginning July 1, 2026. And Ohio Governor DeWine took similar action. Sales Tax Calculator
The era of automatically available, unquestioned data center sales tax exemptions — which drove more than $1 trillion in U.S. data center investment over the past decade — is ending. Not gradually. All at once.
Every state's data center exemption story follows the same arc. And it always comes back to one problem: the projections were spectacularly wrong.
Ohio reported that the tax incentive cost $1.6 billion in 2025 — more than twelve times the budget estimate of $136 million. In Georgia, current revenues are showing a cost of approximately $2.5 billion, nearly eight times the budget estimate of $327 million. Pennsylvania's estimate of $45 million has more than quadrupled to almost $190 million. Madrasaccountancy
Virginia's exemption — originally projected to cost $1.54 million per year — cost $1.6 billion in 2025.
Indiana's exemption cost $655 million in 2025 — an amount that shocked lawmakers who had no idea it had grown that large, with 86% going to Amazon alone.
The AI boom that began with ChatGPT's launch in late 2022 turbocharged data center construction far beyond anything any state projected when it created its exemption. The exemptions worked — spectacularly. And in working, they created fiscal problems that are now triggering political responses across the country simultaneously.
Ohio Governor Mike DeWine announced he directed the chair of the Ohio Tax Credit Authority to pause consideration of any new data center tax exemption requests while the Ohio General Assembly's Joint Data Center Committee studies the growth of data centers in Ohio. Numeral
The governor said the moratorium was announced hours after Signal Statewide reported the tax breaks' value had grown to nearly $1.6 billion in 2025 — or 11 times larger than state estimates. It will continue while a special legislative committee holds hearings on data centers.
The last exemption approved before the moratorium took effect — a $42.3 million tax break for Cologix Inc.'s planned data centers in suburban Delaware and Licking counties — was grandfathered in because it was already in the pipeline. As a condition of taking the state tax incentive, Cologix promised to spend $1.17 billion to build the new data centers, hire 90 full-time workers before 2035 with a payroll of $10 million, and keep its new facilities operating for at least 13 years.
Republican legislators tried to eliminate the state's data center tax exemption last summer, but DeWine blocked them with a veto. GOP House Speaker Matt Huffman has announced plans to overturn the veto, but has said he's so far been unable to muster enough Republican votes to do so. Mass.gov
Meanwhile, two bills are moving through the Ohio legislature that would go further than the moratorium: House Bill 975 would end the sales tax exemption entirely, effective October 1, 2026. Senate Bill 374 — its companion — would end the exemption on October 1, 2027.
The moratorium is a pause. The bills are a potential permanent end.
In Arizona, Governor Katie Hobbs approved a budget that includes a three-year moratorium on the state's data center sales tax exemption. The pause prohibits the Arizona Commerce Authority from accepting applications for the exemption from July 1, 2026, until June 30, 2029.
Today — July 1 — is the first day that moratorium is in effect.
While Governor Hobbs celebrated the tax moratorium's enactment, it is a step back from her initial request to eliminate the tax exemption entirely. Arizona's legislature was willing to pause but not to permanently eliminate — a compromise that mirrors the broader political tension in every state where this fight has played out.
Three years is a significant runway. By June 2029, the AI infrastructure build-out will have matured further, the fiscal costs will be more completely documented, and Arizona's legislature will face the question of what to do at a point when the data center industry has already absorbed the pause.
For data center operators who had Arizona applications in the pipeline, the message is blunt: if you weren't approved before today, you're waiting until at least July 2029.
Illinois Governor J.B. Pritzker paused data center tax incentives starting July 1 and encouraged lawmakers to adopt additional restrictions during the fall veto session, including residential ratepayer protections and water permitting requirements.
Illinois's pause is distinct from Arizona's three-year moratorium — it's an executive direction rather than a budget provision, and it doesn't have a defined end date. The fall veto session is the next opportunity for Illinois lawmakers to act, where Pritzker wants to see residential ratepayer protections and water permitting requirements become law — conditions that would reshape how data centers operate in Illinois, not just whether they receive tax breaks.
For Illinois data center operators, the pause on new exemptions is effective today. Existing exemptions are not affected. But the broader direction — toward environmental conditions, ratepayer protections, and water restrictions — signals that Illinois is moving from an unconditional welcome to a conditional one.
We've covered Virginia's data center fight in detail throughout 2026 — and its resolution is now the template that other states are measuring themselves against.
Virginia didn't eliminate its exemption. It didn't impose a moratorium. It created a new $600 million per year energy consumption tax on data centers while preserving the equipment exemption that drives investment decisions, and created a study subcommittee reporting by December 15.
Virginia's Governor Spanberger pushed back on legislative proposals to curtail the state's data center tax exemption — and the final resolution preserved the exemption while creating new revenue through an energy tax. TaxJar
The Virginia model — preserve the investment incentive, generate new revenue from operations, study the long-term picture — is the most industry-friendly of the approaches being taken nationally. Ohio, Arizona, and Illinois are all taking harder lines.
Texas Governor Greg Abbott directed state regulators to ensure data centers pay for their own electric infrastructure and interconnection costs so residential ratepayers are not burdened. His 2027 legislative priorities include requiring data centers to use water-efficient cooling systems, add to the state's electric capacity, meet siting and setback requirements, and repealing sales tax exemptions for data centers.
Texas is the most important data center market after Virginia. If Texas repeals its data center sales tax exemption in 2027 — as Abbott's stated legislative priorities indicate — the ripple effect on investment decisions would be unlike anything Ohio's, Arizona's, or Illinois's pauses have created.
Texas's legislature only meets every two years — the next session opens in January 2027. Abbott's stated priorities carry significant political weight in a legislature where he holds substantial influence. The 2027 Texas legislative session on data center taxation is shaping up to be the most consequential chapter yet in this national story.
Ohio and Illinois aren't the only Republican governors taking action.
Utah Governor Spencer Cox released an Executive Order outlining his data center framework, establishing new restrictions on data center construction and operations — directing state agencies to weigh water use, air quality, wildlife impacts, and ratepayer protections alongside economic growth. Mass.gov
Utah's approach is different from a tax exemption pause — it's a broader regulatory framework that makes data center development more conditional rather than simply stopping new tax breaks. But the direction is the same: states that were previously unconditional welcomes for data center investment are now asking harder questions.
A local group in Ohio is trying to get a data center ban on the November ballot that would prohibit data centers with a peak load of more than 25 megawatts per month.
A full ban — not just a moratorium on tax exemptions, but a prohibition on large data center construction — would be unprecedented. Whether the initiative qualifies for the November ballot and whether Ohio voters would approve it are both uncertain.
But the effort reflects something real: in communities adjacent to large data center campuses, the conversation has shifted from economic benefit to concern about utility costs, water use, environmental impact, and neighborhood character. The tax exemption fight at the statehouse and the ballot initiative fight at the community level are parallel expressions of the same underlying tension.
The simultaneous pauses in Ohio, Arizona, and Illinois create a specific compliance and strategic challenge for data center operators.
Existing exemptions are unaffected. All three states' pauses apply to new applications only. Data centers that already hold approved exemptions continue to receive them under existing terms.
Pipeline applications are at risk. Any data center project that was in the application process but not yet approved before the pause took effect is now in limbo. Ohio's last approval was the Cologix project on May 30. Arizona's last approvals were whatever cleared before July 1. Illinois's timeline depends on the specific application status before Pritzker's direction took effect.
New projects need alternative strategies. For hyperscalers evaluating sites for new builds, Ohio, Arizona, and Illinois now have a higher effective cost of development — the equipment and infrastructure purchases that would have been exempt will be taxable until the pause is lifted or the exemption is reinstated.
Virginia's model is the new benchmark. Data center operators negotiating with state governments should understand the Virginia resolution — energy consumption tax, exemption preserved, study commission — as the most favorable outcome achievable in the current political environment. Arguing for no change at all is no longer a viable position in most states.
Texas 2027 is the watch item. If Abbott follows through on repealing Texas's data center sales tax exemption in the 2027 legislative session, it will be the single largest change to the data center investment landscape since Virginia's fight earlier this year. Operators planning Texas builds need contingency models for a post-exemption Texas.
The economic development incentive is somewhat downstream of the overall data center debate. A section of the population may be comfortable with data center development, but not with public subsidies at the current scale. Governor DeWine's moratorium is driven primarily by revenue impacts. Madrasaccountancy
The trend isn't universal — New York Governor Kathy Hochul has signaled that she does not support a moratorium making its way through the legislature. Virginia Governor Spanberger pushed back on proposals to curtail the state's exemption. Sales Tax Calculator
Not every state is moving in the same direction at the same speed. But the direction is clear: the era of states competing to offer the most generous, unconditional data center tax exemptions is over. What replaces it — conditional exemptions, energy taxes, moratoriums, or outright repeal — will vary by state. But the baseline assumption that a data center in America gets a sales tax exemption on its equipment is no longer valid everywhere.
Operating a data center in Ohio, Arizona, Illinois, or any state currently reviewing its exemption — or planning a new data center build and trying to understand the tax landscape across potential locations? Book a free consultation with our team at sales.tax. We'll walk through your current exemption status, model the compliance implications of each state's approach, and help you navigate the rapidly shifting data center tax landscape.