Virginia passed its budget today. The four-month data center tax fight is over.
Pennsylvania's fight is just getting started — and the clock is ticking in a state that has never met its June 30 budget deadline on time in recent memory.
After last year's budget impasse stretched more than 130 days behind schedule, Pennsylvania lawmakers are hopeful they can avoid a similar delay this year. Gov. Josh Shapiro presented lawmakers with a $53.3 billion spending plan in February and negotiations are ongoing as state officials eye the commonwealth's June 30 deadline. Avalara
Eight days left. A $5 billion structural deficit. A data center exemption fight that mirrors Virginia's. A digital advertising tax proposal moving through the legislature right now. And a Senate and House that haven't agreed on a final product.
Here's where Pennsylvania actually stands — and what the sales tax implications are for businesses across the state.
Pennsylvania's fiscal situation is worse than Virginia's — and Virginia's was bad enough to nearly shut down the government.
Pennsylvania is facing a long-term structural budget imbalance in which the state's expenses are expected to outpace revenues over the next several years. The commonwealth is on track to spend around $5 billion more than it makes in revenue for this fiscal year.
Pennsylvania's Independent Fiscal Office projected that the state faces a General Fund structural deficit of $3.65 billion for the 2025-26 fiscal year — a figure that will grow to more than $7.5 billion by 2030. The commonwealth is anticipated to have roughly $7.7 billion in its Rainy Day Fund at the end of the 2025-26 fiscal year. Quaderno
The Rainy Day Fund — once at $14 billion two years ago — has been cut in half. That kind of deficit spending has become routine in recent budgets and led to cash reserves being halved from $14 billion two years ago to roughly $7 billion.
Pennsylvania has been patching its structural deficit with reserves. The reserves are running out. And this year, the patch may not be big enough.
Pennsylvania is watching Virginia's data center fight very closely — because it's fighting almost the same battle simultaneously.
Eliminating the state's sales tax exemption for purchases related to building and maintaining data centers is on the table. The commonwealth is projected to miss out on $2 billion in accumulated tax revenue by 2031. TaxHero
Two conservative Republicans — state Rep. Jamie Walsh of Luzerne County and Sen. Jarrett Coleman of Lehigh County — have jointly introduced a bill to repeal the data center tax break and use the money to reduce the cost of gas. In a memo seeking support, they said the state should not "continue to give a special tax incentive to the thriving data center industry."
Almost 30 state House Democrats are backing a bill that would repeal the exemption. Unlike Virginia — where the fight was entirely within the Democratic party — Pennsylvania's data center exemption fight has bipartisan opposition. That makes it more likely to move, not less.
This is the more immediately active proposal — and it just passed the House.
Democrats in both chambers of the General Assembly have introduced a proposal that would extend the state's 5% gross receipts tax to digital advertising platforms run by Google, Meta, Amazon and others — potentially generating $500 million in annual revenue.
A bill to levy the digital ad tax passed the Democratic-controlled state House 139-63 on Wednesday. It was unanimously amended to direct any revenue raised to provide property tax relief for older homeowners. The bill is now with the state Senate. TaxHero
Senate majority leader Joe Pittman didn't rule out an ad tax or an end to the data center exemption. "There are concerns about that data center sales tax provision, and it's certainly possible that discussion on what the right approach is will unfold in the weeks ahead," Pittman said.
A digital advertising tax that passed the House 139-63, with Senate Republican leadership not ruling it out — that's a bill with a real path to becoming law before June 30.
Governor Josh Shapiro came into this budget cycle with a clear revenue strategy — and it doesn't rely on tech taxes as the primary mechanism.
In his 2026 executive budget proposal, Shapiro proposed three potential revenue sources: legalizing and taxing recreational marijuana — generating $200 million in annual sales tax revenue, regulating and taxing skill game machines, and increasing the minimum wage from $7.25 to $15 an hour beginning in January 2027 — generating an additional $80 million in annual tax revenue.
None of those three revenue sources has passed yet. Marijuana legalization has stalled in the Senate. Skill game taxation is actively being negotiated. The minimum wage increase is a longer-term revenue play, not an immediate budget fix.
Shapiro's budget proposal also calls for a $4.5 billion transfer from the Rainy Day Fund to balance the budget — a move that would leave the fund significantly depleted and essentially defer the structural deficit problem to the 2027-28 cycle.
The honest answer is: probably.
After last year's budget impasse stretched more than 130 days behind schedule, Pennsylvania lawmakers are hopeful they can avoid a similar delay this year. Avalara
"Hopeful" is not the same as "confident." And Pennsylvania's legislative history doesn't inspire confidence.
The state missed the June 30 deadline in 2024. It missed it in 2025 by more than 130 days. The House passed a General Appropriations bill in April — which is progress — but the House bill and the Senate's position remain significantly apart on revenue questions.
Whether it bears fruit by June 30 remains to be seen. Quaderno
Unlike Virginia — which faced a true government shutdown on July 1 because its constitution requires a balanced budget before spending can occur — Pennsylvania has more flexibility to continue operating past the June 30 deadline. State agencies can continue functioning under existing appropriations in many cases, and Pennsylvania has precedent for extended budget delays without a formal shutdown.
But "no formal shutdown" is not the same as "no problem." Extended budget delays create uncertainty for school districts, social service providers, and any Pennsylvania entity that depends on state funding. And for businesses, a delayed budget means delayed resolution on every revenue and tax question still on the table.
Pennsylvania's budget fight has direct sales tax implications that businesses in and selling into the state need to understand.
The data center exemption: If Pennsylvania eliminates or caps its data center sales tax exemption, operators purchasing computer equipment in the state will owe Pennsylvania's 6% state sales tax — plus applicable local rates — on those purchases. Given Pennsylvania's $2 billion exemption cost through 2031, the compliance and cost implications for data center operators would be significant and immediate.
The digital advertising tax: If the Senate passes the House's digital ad tax bill, businesses buying digital advertising on Google, Meta, Amazon, or similar platforms would face a new 5% gross receipts tax on those purchases in Pennsylvania. This isn't a sales tax collected at the point of purchase — it's a tax on the platform's gross receipts that would almost certainly be passed through to advertisers in the form of higher ad rates.
The marijuana sales tax: If recreational marijuana legalization passes, Pennsylvania would impose sales tax on marijuana retail sales — creating a new compliance category for dispensaries and potentially new questions about the taxability of related products.
The transit sales tax diversion: Shapiro's budget calls for diverting an additional portion of sales and use tax revenue to fund public transit — a structural change in how Pennsylvania allocates its sales tax collections that would affect the General Fund available for other purposes. Quaderno
The parallels between Pennsylvania and Virginia's budget battles are striking — but the outcomes may diverge.
Virginia's fight was internal Democratic disagreement about how aggressively to tax an industry that both sides agreed needed to pay more. The resolution — a two-year energy consumption tax, exemption preserved, study subcommittee created — reflects the limits of what Democrats could negotiate with themselves.
Pennsylvania's fight is more conventionally partisan — a Democratic House pushing tech taxes that a Republican Senate is only partially willing to accept. That divide is structurally harder to resolve before a deadline than Virginia's intra-party fight.
The result: Pennsylvania is likely to do what it usually does — pass a partial budget, continue negotiating on contested revenue questions, and finalize something months after June 30. The data center exemption question, the digital ad tax, and the marijuana legalization revenue will likely be part of a fall negotiation rather than a June resolution.
For businesses in Pennsylvania: the June 30 deadline is real, but the practical impact of missing it is more limited than it would be in Virginia. The more important date to watch is September or October — when Pennsylvania's budget negotiations typically conclude and the final revenue decisions get made.
If you operate a data center in Pennsylvania: The exemption is not yet at risk in the current budget cycle — but the bipartisan support for repeal is real. Virginia's energy tax model gives Pennsylvania a ready template. Start modeling what a Virginia-style consumption tax on your energy use would mean for your cost structure.
If you buy digital advertising in Pennsylvania: The House-passed digital ad tax is now in the Senate. If it passes, Google, Meta, and Amazon will pass the cost through to advertisers. Monitor the Senate's timeline and build potential ad cost increases into your Q3 marketing budget assumptions.
If you sell into Pennsylvania generally: The state's 6% sales tax rate and current exemption structure are stable for now. But watch the fall budget negotiations — any new revenue measures that pass will likely take effect January 1, 2027, giving you a narrow window to update compliance systems.
If you're a marijuana business or investor: Recreational marijuana legalization in Pennsylvania would create an entirely new sales tax compliance category. If it passes — which remains a Senate-dependent question — the compliance infrastructure needed is significant. Start planning now rather than when the law takes effect.
Eight days to June 30. Pennsylvania's budget will almost certainly not be done by then. But the decisions made in the weeks and months after June 30 will reshape the state's sales tax landscape in ways that affect every business operating there.
Operating a business in Pennsylvania — a data center, a digital advertiser, or any company navigating the state's evolving tax landscape? Book a free consultation with our team at sales.tax. We'll help you understand your current exposure and prepare for whatever Pennsylvania's legislature decides in the months ahead.