Six days ago, Virginia's Senate Finance Chair Louise Lucas posted a confident message to social media.
"The good news is that we're getting close to an agreement on how to pay for core services. We will have a budget before June 30th and you can take that to the bank!" TaxJar
Today, the smoke coming out of Richmond looks a lot darker.
Based on comments from Sen. Lucas and Senate Majority Leader Scott Surovell posted on June 6, it's not looking great for the State Senate, House of Delegates, and Gov. Abigail Spanberger to reach agreement on a new two-year budget by the end of this month — which is the fiscal deadline to get this done, or potentially face a partial government shutdown starting July 1.
Currently, the plan is for the House of Delegates to reconvene on June 18, followed by the State Senate on June 22.
That's 8 working days before a government shutdown that has never happened in Virginia's modern history.
Here's the detail that makes Virginia's situation genuinely remarkable.
Virginia's revenue forecast jumped by $1.5 billion just last week — June 2, 2026.
The state is collecting more money than projected. Significantly more. And yet Virginia is simultaneously careening toward its first-ever government shutdown — not because it doesn't have enough money, but because lawmakers can't agree on whether to give $1.9 billion of it away every year to one of the most profitable industries in human history.
This is not a fiscal crisis. It's a philosophical one.
We've been tracking this story since February. For readers just tuning in, here's the complete picture.
In 2008, Virginia created a sales and use tax exemption for data centers. The exemption was projected to cost $1.54 million when it passed. In fiscal year 2025, it cost Virginia $1.6 billion — up 118% from the prior year alone, driven by the AI-fueled data center construction boom. TaxHero
Data centers that invest $150 million and create at least 50 jobs are currently exempt from paying sales and use tax on their computer equipment, software, and hardware purchases. Shopify
The exemption worked spectacularly — Virginia is now the data center capital of the world. And that success created a fiscal problem that has paralyzed the state budget for four months.
The Senate's approach includes over $1 billion in new revenue from letting the data center sales and use tax exemption expire in January 2027. Senate Finance Chair Lucas put it bluntly: "For years, Virginia has been writing a blank check to some of the world's most valuable corporations — a check that started at $1.54 million and has grown to $1.6 billion — while families struggle to pay for childcare, health insurance, and a place to live."
The House and Governor Spanberger disagree. Spanberger's office said she was wary of "going back on Virginia's commitments to businesses that have invested in the Commonwealth."
Lucas fired back on X: "Gov. Spanberger thinks our chicken isn't cooked — then what is the Senate supposed to pluck out of our budget? Raises for teachers, health insurance assistance, transit support, a tax rebate, or childcare slots?" Hands Off Sales Tax
That exchange — two Democratic leaders publicly clashing over a sales tax exemption — captures exactly how broken the negotiations have become.
The scale of what's at stake deserves a moment of attention.
Virginia forfeited $1.6 billion in tax revenue through data center exemptions in fiscal 2025 — up 118% on the prior year. Good Jobs First, a nonprofit promoting corporate and government accountability, warns these incentives have become essentially automatic. Virginia's qualification threshold requires just $150 million in capital investment and 50 new jobs — modest compared to the billions spent on today's hyperscale facilities. AccurateTax
For comparison: the entire original projection for this exemption was $1.54 million per year. The actual cost is now more than 100,000% above that projection.
As Senate Majority Leader Scott Surovell pointed out: the exemption was projected to cost the state about $1.54 million when it was passed in 2008. In 2025, it cost Virginia $1.6 billion. And that amount will escalate as the industry continues its explosive growth across Virginia — Dominion Energy told the State Corporation Commission that data centers have requested 70,000 megawatts of power, almost triple the utility's current peak load. Quizlet
The Senate's position: the exemption has done its job. Virginia is the data center capital of the world. The industry isn't going anywhere. It's time to pay taxes.
The House's position: the investment flywheel is still spinning — $80.6 billion invested in fiscal years 2024 and 2025 alone — and pulling the exemption now risks stopping it.
The Data Center Coalition countered that the state could lose out on an estimated $1.3 billion in net tax revenue over five years due to decreased investment if the exemption disappears — and that the industry has invested over $100 billion across the state in the last three years, generating over $5 billion in state and local tax revenue. Quaderno
Here's the math that should alarm everyone.
That's 8 calendar days between when both chambers are finally in the same room and when Virginia's government either has a budget or begins shutting down.
A continuing resolution — the federal government's typical fallback when budgets fail — is not clearly available under Virginia's constitutional framework. Most observers assume Democrats will find some way to avoid a shutdown, given they control the governorship, House, and Senate simultaneously. But "some way" is increasingly unclear. TaxJar
The regular session ended without a budget in March. A special session in April ended without a budget. Lawmakers recessed. Returned briefly. Recessed again. And the positions haven't moved.
The $1.5 billion revenue forecast revision published June 2 should have made a deal easier. It didn't.
Here's why: the Senate wants to use the revenue from ending the data center exemption to fund specific programs — teacher pay raises, healthcare assistance, transit support, childcare slots. These aren't abstract budget line items. They're commitments senators have made to constituents.
The revenue surplus gives the House more flexibility to argue that those programs can be funded without touching the data center exemption. The Senate's counter is that relying on a one-time revenue surge to fund ongoing program commitments is fiscally irresponsible — that permanent revenue sources should fund permanent programs.
Both arguments are legitimate. Neither is moving.
Virginia has never shut down its government in modern history. Here's what July 1 without a budget actually means:
State agencies cannot legally spend money beyond the most essential constitutional functions. No discretionary spending. No new contracts. No program expansion.
State employees face paycheck uncertainty — payroll requires budget authority that doesn't exist without a signed budget.
Local school districts that depend on July state funding disbursements face immediate cash flow crises. School boards across Virginia have already been warned to prepare contingency plans.
State contractors stop getting paid — halting road maintenance, IT support, facility management, and hundreds of other contracted services.
Courts and law enforcement continue under essential services provisions — but with reduced administrative support and no budget clarity for ongoing programs.
"Unlike in the federal government, a lot of things start shutting down here in the commonwealth," Del. Terry Kilgore warned. The Sales Tax People
The federal government can limp along on continuing resolutions for months. Virginia cannot.
Scenario 1 — Deal by June 28. The most likely outcome. Negotiations between June 18-22 produce a compromise — almost certainly some version of the governor's middle path: a new consumption or energy tax on data centers rather than full exemption elimination. Both sides get something. Virginia avoids shutdown.
Scenario 2 — Emergency short-term measure. If negotiations collapse again after June 18, lawmakers could theoretically pass an emergency spending authorization to keep the lights on while talks continue. This isn't clearly available under Virginia's constitution — but the political pressure to avoid shutdown would be enormous.
Scenario 3 — Shutdown begins July 1. The historically unprecedented outcome. Both chambers return June 18-22, fail to reach agreement in 8 days, and Virginia enters July 1 without a budget for the first time in modern history. The political fallout for Democrats — who control every lever of state government — would be severe and lasting.
Most observers believe Democrats will ultimately find a way to avoid scenario three. But "ultimately" is doing a lot of work in that sentence when the deadline is 22 days away and the negotiations are sending up black smoke. TaxJar
For businesses operating in Virginia — or selling into the state — the next 22 days are the most important in Virginia's tax policy in years.
If you're a data center operator: Every scenario except full exemption elimination leaves your current compliance structure intact through at least 2026. But a consumption or energy tax — the most likely compromise — would require entirely new compliance infrastructure. Start understanding what an energy-based tax would mean for your cost structure now.
If you're a tech business buying data center services: A cost increase for data centers flows directly to their customers. Cloud computing, hosted software, and managed services pricing in Virginia could shift depending on the outcome.
If you're any business in Virginia: A shutdown beginning July 1 doesn't stop tax collection — that continues as an essential function. But it creates economic uncertainty and disruption that ripples through every industry. State contracts go unpaid. Government spending stops. The economic signal is deeply negative even if the practical disruption is initially limited.
If you sell into Virginia from out of state: Watch the July 1 date carefully. A Virginia shutdown doesn't change your sales tax obligations — but it changes the state's capacity to process registrations, respond to inquiries, and handle administrative matters.
22 days. 8 working days once lawmakers return. One sales tax exemption standing between Virginia and its first government shutdown.
The next update from Richmond will be the most important one yet.
Operating a business in Virginia or with significant Virginia sales tax exposure and want to understand how each possible budget outcome affects your compliance obligations? Book a free consultation with our team at sales.tax. We'll walk through every scenario and make sure you're ready for whatever comes out of Richmond before June 30.