Virginia just became one of the most important sales tax stories in the country heading into November.

Voters in 47 Virginia jurisdictions will weigh a 1% sales tax to fund school construction and modernization costs on November 3, 2026. In Northern Virginia, the revenue could also be used for transit funding. Early voting begins September 18.

That's 47 separate local sales tax referendums — all on the same ballot, all on the same day — each one capable of adding 1 percentage point to the combined sales tax rate in that jurisdiction overnight.

For businesses selling into Virginia, November 3 is a date worth circling.

How This Happened — The Budget Deal That Changed Everything

We covered Virginia's four-month budget crisis in detail earlier this year — the data center tax fight, the "data center diva" showdown, the near-shutdown. What most coverage missed was a provision buried in the final budget deal that is now reshaping Virginia's local tax landscape more dramatically than the data center fight ever did.

As part of Virginia's 2026-28 budget, the General Assembly approved legislation giving all Virginia cities and counties the authority to put a referendum on their November ballot to impose an additional 1% sales and use tax — provided the revenues are used only for school capital projects. Previously, only nine localities had been authorized to levy the additional sales tax through a separate General Assembly action in 2020.

As Cardinal News reported, lawmakers pushed to expand the authority for years but efforts either failed or were vetoed by former Republican Governor Glenn Youngkin, who cited concerns about adding to Virginians' tax burden.

With a Democratic-controlled General Assembly and Democratic Governor Abigail Spanberger in office, the expansion finally made it through — tucked into the budget that also created the new energy consumption tax on data centers. The result: a scramble across Virginia as county boards and city councils raced to place the referendum on November's ballot before the August 14 deadline.

What 47 Jurisdictions Means in Practice

More than 40 localities had approved a voter referendum for the additional 1% sales tax as of early August — and the final count reached 47 jurisdictions on the November ballot.

That's 35% of Virginia's municipal governments simultaneously asking voters to approve a new local sales tax layer — a number that has no precedent in Virginia history.

The 47 jurisdictions span the state geographically. In Northern Virginia, major jurisdictions including Fairfax County, Prince William County, and Arlington County are on the list. Chesterfield County — one of Virginia's largest suburban counties with over 400,000 residents — is asking voters whether the county should be authorized to levy a local general retail sales tax at a rate not to exceed one percent, the revenues of which shall be used solely for capital projects for the construction or renovation of public schools, which shall expire on July 22, 2046.

Chesterfield alone estimates the additional tax would generate $65 million to $70 million each year for qualifying public school construction and major renovation projects.

About 58% of Virginia's counties and cities are not seeking any change — some localities held back because they didn't need the authority right now, it didn't solve their capital or revenue problem, or they preferred to wait for a future year. But for the 47 that are on the ballot, November 3 is a decisive moment.

The Northern Virginia Transit Angle

In Northern Virginia specifically, the 1% school construction tax has an additional dimension. The revenue from the tax in Northern Virginia localities could also support transit funding — making it a dual-purpose measure in the state's most densely populated and commercially active region.

Northern Virginia's proximity to Washington D.C. — where the combined sales tax rate is going to 7% on October 1 — means that businesses operating across the D.C.-Virginia border are already tracking rate changes in both jurisdictions simultaneously. A successful 1% referendum in Fairfax County, Arlington, or Prince William would push those jurisdictions' combined rates meaningfully higher in an already complex multi-jurisdiction environment.

What Has Worked Before — The Track Record

The nine localities that already had authority to levy the school construction sales tax provide a concrete preview of what the new jurisdictions could expect.

Virginia localities have already raised $119 million for school construction through targeted sales taxes, according to Virginia Mercury's June 2026 reporting. Henry County has raised $28 million since voters approved their referendum in 2020. Pittsylvania County has raised $11.5 million since 2023.

Those numbers are why local leaders in the 47 new jurisdictions are pointing to the existing examples when making their case to voters. The money is real, the projects are visible, and the track record is short but concrete.

The arguments against are equally concrete. As the Daily Signal noted in its coverage, adding a 1% sales tax raises questions about transparency in school capital spending — and about whether visitors, commuters, and out-of-county shoppers should bear the cost of school construction for residents.

Powhatan County's Board of Supervisors framed the fairness argument directly: approval of the referendum would shift the burden of funding the school's facility needs from the county's residential property owners to a larger pool that includes visitors, commuters, and other non-Powhatan residents — and would provide a consistent funding stream for school capital projects.

The Virginia Beach Example — $100 Million on the Line

The scale of Virginia's school construction backlog is illustrated most dramatically by Virginia Beach — the state's most populous city.

The Virginia Board of Education recently approved $577 million in grants to schools across the commonwealth, with the average project cost at $16.98 million. Virginia Beach had the most expensive single project — $100 million to construct a new Princess Anne High School building, expected to be completed in 2028.

Virginia Beach is among the jurisdictions with a referendum on November's ballot. A successful vote there would generate significant new annual revenue specifically dedicated to projects like the Princess Anne rebuild — without requiring property tax increases or bond measures that would require supermajority approval.

What Businesses Selling Into Virginia Need to Know

This is where the story moves from politics to compliance — and where businesses need to start paying attention now, not after November 3.

The key facts for compliance planning:

If the referendums pass in a jurisdiction, the local governing body then has the authority to adopt an ordinance imposing the additional sales tax. The tax cannot be implemented immediately upon voter approval — the governing body must take action to formally adopt it. York County's referendum language is explicit: the tax would end after 20 years or when the debt used to finance school construction and renovation is paid off.

The timeline from voter approval to actual rate change will vary by jurisdiction. Some counties and cities that pass the referendum on November 3 may move quickly to adopt the ordinance and implement the tax as early as January 1, 2027. Others may take longer. The Virginia Department of Taxation will publish updated rate tables as each jurisdiction's new tax takes effect — which is the authoritative source for compliance purposes.

The practical implication: businesses selling into Virginia are potentially looking at up to 47 separate local rate changes across the state — spread over multiple effective dates in 2027 — depending on how quickly each jurisdiction moves from voter approval to ordinance adoption.

For ecommerce sellers using address-level tax calculation, this is a manageable update if you have a system that pulls from Virginia Tax's published rate tables. For businesses using manual rate tables or legacy systems that don't update automatically, each jurisdiction's change is a separate manual update requirement.

The November 3 Timeline for Businesses

Early voting begins September 18 — just two weeks away. The November 3 election date is when the results will be known. But results alone don't trigger rate changes — the subsequent ordinance adoption process in each jurisdiction does.

Here's how to think about the timeline:

September 18: Early voting begins across Virginia jurisdictions with referendums on the ballot.

November 3: Election Day. Results known for all 47 referendums the same night.

November through December: Governing bodies in jurisdictions that passed their referendums begin the ordinance adoption process.

January 1, 2027: The earliest realistic effective date for most jurisdictions that move quickly. Some may take until April 1 or July 1, 2027.

The practical preparation window: November 4 through December 31. If the referendums pass in jurisdictions where you have significant customer volume, that's your window to update your Virginia rate configurations before the new tax takes effect.

The Broader Virginia Tax Picture

November's referendum wave doesn't exist in isolation. Virginia's combined sales tax landscape has already been shifting in 2026.

The state budget that authorized these referendums also created the new energy consumption tax on data centers — $600 million per year — and included the local 1% school construction tax authority as part of the same legislative package. The data center energy tax took effect July 1. The school construction referendum wave votes November 3. And Washington D.C.'s rate goes to 7% on October 1 — adding complexity to the Northern Virginia market specifically.

For any business with significant Virginia sales — particularly in Northern Virginia where multiple overlapping jurisdictions may all pass the referendum simultaneously — 2026 is the year to ensure your Virginia compliance setup is current, flexible, and capable of handling multiple simultaneous local rate changes in early 2027.

Not sure how Virginia's November referendums could affect your sales tax rates — or want to make sure your system is ready to handle up to 47 potential Virginia rate changes in early 2027? Book a free consultation with our team at sales.tax. We'll review your Virginia footprint and help you build a compliance plan that handles whatever November brings.

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.

The Scale of Pennsylvania's Deficit Problem

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.

The Two Big Tech Tax Proposals — Both on the Table Right Now

Pennsylvania is watching Virginia's data center fight very closely — because it's fighting almost the same battle simultaneously.

The Data Center Sales Tax Exemption

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.

The Digital Advertising Tax

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.

What Pennsylvania's Governor Is Proposing

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.

Will Pennsylvania Miss the June 30 Deadline — Again?

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.

What's Actually at Stake for Businesses

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

Pennsylvania vs. Virginia: The Same Fight, Different Outcome Ahead

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.

What Businesses Should Do Right Now

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.

Four months. Three failed sessions. One "data center diva" insult. Dozens of dramatic headlines.

And on Friday evening, June 19 — with 11 days left before Virginia's first-ever government shutdown — it ended.

Virginia Democrats agreed to impose a new energy tax on data centers, resolving a months-long budget impasse that threatened the state's first government shutdown. Data centers would face a temporary tax on their power use — costing the industry an estimated $600 million per year — under a budget agreement reached Friday by state House and Senate leaders. The deal maintains the industry's sales tax exemptions, which are worth nearly $2 billion a year and had been at the center of the intraparty standoff.

The Senate convened at 10 a.m. and the House of Delegates at 2 p.m. today — June 22 — to vote on the conference report. If passed, it goes to Governor Spanberger for her signature.

Virginia is about to have a budget. And the data center sales tax exemption survives.

What the Deal Actually Does

The compromise that ended four months of deadlock is elegant in its structure — it gives both sides something real without either side fully winning.

The budget agreement levies a Data Center Electricity Consumption Tax of $0.011 per kilowatt-hour of electricity consumed per month. The State Corporation Commission will collect the tax. No more than $600 million of the proceeds shall go to the general fund.

The key details:

• Rate: $0.011 per kWh consumed monthly
• Cap: $600 million per year maximum to the general fund — excess refunded proportionately
• Duration: Two years only — the life of this budget cycle
• Scope: Applies regardless of whether electricity comes from a utility, cooperative, competitive provider, or is self-supplied
• Sales tax exemption: Preserved entirely — the $1.9 billion annual exemption on computer equipment stays intact through 2035

While technically a compromise, Senate Finance Chair Lucas's push for data center revenue resulted in more going to state coffers than in her original proposal, which would have added $977 million in revenue for the two-year budget. The new energy tax is expected to generate $1.2 billion over the biennium. The Sales Tax People

Lucas won on revenue. The House and governor won on the exemption. Neither side got everything — which is exactly what a compromise looks like.

What the Senate Won — And Lost

Senate Finance Chair Louise Lucas was the driving force behind the upper chamber's push to tax data centers more aggressively. She spent the past week touring the state on a "data center listening tour" soliciting public grievances against the sector's expansion in Virginia.

The Senate came into this fight wanting to eliminate the sales and use tax exemption entirely — generating nearly $2 billion per year in new revenue. What it got instead is $600 million per year from an energy consumption tax — with no guarantee the tax continues after this two-year budget cycle.

Budgeters including Gov. Spanberger would likely need to replace the $1.2 billion the new energy tax is set to generate during the next budget cycle — meaning the 2028 budget fight could replay many of the same dynamics as this one.

Lucas and the Senate also won a study mechanism. The budget creates a Joint Subcommittee on Tax Policy to study the sales and use tax exemption and report recommendations to the General Assembly by December 15, 2026.

That December 15 report — not the commission's November 1 deadline from the House's earlier proposal — becomes the foundation for whatever the 2027 session does with the exemption.

What the House and Governor Won

The House and Governor Spanberger came into the final stretch with one non-negotiable: preserve the sales tax exemption. They got it.

The deal maintains the industry's sales tax exemptions, which are worth nearly $2 billion a year. Spanberger and House Democrats were against the Senate's initial bid to repeal the sales tax exemption, arguing it would amount to breaking a contract and could hinder Virginia's business climate.

The energy consumption tax — while a new cost for data centers — is structured differently from the sales tax exemption fight. It's a tax on electricity consumption, not on equipment purchases. It doesn't touch the core incentive that data centers used when making their original Virginia investment decisions. And with a cap at $600 million per year, the industry's exposure is bounded and predictable.

House lawmakers had consistently cited how data centers support 74,000 jobs in Virginia and generate more than $2 million in local tax revenue — arguments that ultimately carried the day on preserving the exemption itself. The Sales Tax People

What the Industry Is Saying

The data center industry is not celebrating.

The Data Center Coalition asserted that Friday's deal — which would cost the industry $1.2 billion over two years — would "raise costs on Virginians and Virginia businesses, drive away investment and job creation, and tarnish Virginia's reputation as a reliable partner and a good place to do business." "The message to businesses in all industries is clear — Virginia is no longer a reliable partner," the trade group said. The Sales Tax People

That reaction is expected and somewhat ritualistic — industry groups always oppose new taxes. But the "no longer a reliable partner" framing is worth taking seriously, because it's the argument that will drive investment decisions at the margin.

A hyperscaler deciding between Virginia and Texas for its next campus doesn't just look at tax rates. It looks at political risk — the likelihood that the rules will change unexpectedly. Virginia's four-month budget war, even though it ended with the exemption preserved, injected uncertainty into what was previously one of the most stable investment environments in the country.

Whether that uncertainty changes actual investment decisions is something the December 15 subcommittee report will attempt to measure.

What's in the Rest of the Budget

The data center fight dominated the headlines — but the $207 billion two-year budget contains significant spending and tax changes beyond the energy tax.

The budget puts $1.5 billion toward 4% pay raises for public school teachers and 3.5% raises for state employees, $137.6 million for additional Child Care Subsidy Program slots for families making up to 85% of state median income, and adds an additional $159 million in school construction grants. The Sales Tax People

It includes a permanent increase to the standard deduction — from $8,750 for single filers to $9,200 in taxable year 2027 and $9,300 in taxable year 2028, with joint filers increasing from $17,500 to $18,400 to $18,600. Nearly $1 billion has been allocated as a contingency reserve to cover anticipated gaps from reduced federal funding.

The budget gives all localities the option to hold a referendum to ask residents if they want to create a new 1% sales tax that would be used to fund school construction. It also includes the deal for the creation of a recreational retail marijuana market, with sales starting July 1, 2027.

That local 1% school construction sales tax option is quietly significant for businesses. If localities across Virginia begin holding referendums and approving new 1% sales taxes, the rate landscape in Virginia could shift significantly over the next several years — adding address-level compliance complexity for any business selling into multiple Virginia jurisdictions.

The New Virginia Compliance Picture

For businesses operating in or selling into Virginia, here's exactly what changes — and when.

The data center energy consumption tax:
Data center operators will pay $0.011 per kWh consumed monthly, collected by the State Corporation Commission. This is an operator-level tax — not a sales tax collected from customers. Data centers need to understand their monthly kWh consumption and build the new cost into their financial models immediately. The tax applies for the two-year budget period beginning July 1, 2026.

The sales tax exemption — unchanged:
Data centers that qualify under the existing rules — $150 million investment, 50 jobs — continue to receive the sales and use tax exemption on computer equipment and software purchases. No change to their sales tax compliance setup for equipment purchases.

The local 1% school construction option:
Watch for referendums in your operating jurisdictions. If a locality where you have customers or operations approves a new 1% school construction sales tax, your rate for that jurisdiction increases by 1 percentage point. These referendums could happen at any point — build a monitoring process into your Virginia compliance calendar.

The December 15 subcommittee report:
This is the next major milestone in Virginia's data center tax story. Whatever the subcommittee recommends about the sales and use tax exemption will shape the 2027 legislative session — and potentially trigger another fight about the exemption's future. Data center operators should engage with the subcommittee process now rather than waiting for its findings.

Why This Story Matters Beyond Virginia

We said it in February when this story started, and it's still true now: Virginia's resolution sets a template for how other states handle the data center exemption question.

The success of Virginia's approach — levying a new tax on energy consumption rather than eliminating the equipment exemption — could become an example for other states.

Georgia is staring at $2.5 billion in data center exemption costs. Pennsylvania is weighing whether to touch its own exemption as part of its budget fix. Texas is expanding its data center footprint aggressively while other states watch.

Every one of those states now has a Virginia model to reference: preserve the investment incentive, create a new consumption-based revenue stream, study the long-term picture, and revisit in two years. It's not a perfect solution — the industry hates it and the Senate only got part of what it wanted. But it avoids the political and economic risk of abrupt exemption elimination, and it generates real revenue without breaking the promises Virginia made to the industry in 2008.

Whether other states follow the model — or go further — will be one of the defining sales tax stories of 2027.

Operating a data center in Virginia or a tech business affected by Virginia's new energy consumption tax? Book a free consultation with our team at sales.tax. We'll walk through exactly what the new tax means for your cost structure and compliance obligations beginning July 1.

Four months. Three failed sessions. One "data center diva" insult.

And on Friday, June 12, Governor Abigail Spanberger ended it.

"Today, the House of Delegates put forward a substantive, specific budget proposal to deliver on so many priorities Virginians share," Spanberger said Friday. "I appreciate Speaker Don Scott, Appropriations Chairman Luke Torian, and the members of the House who came to the table in good faith to make it happen. It is a proposal I am proud to support."

The governor added: "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." Taxfyle

The data center sales tax exemption — worth $1.6 billion annually and the single issue that has paralyzed Virginia's budget since February — survives. For now.

But the Senate hasn't agreed yet. And there are 15 days left.

What the House Proposal Actually Does

The new House budget proposal — unveiled Friday and immediately backed by the governor — takes a fundamentally different approach to the data center fight than anything proposed before.

The revised House proposal removes the environmental requirements that had been included in earlier House budgets — provisions that would have required energy efficiency measures and restrictions related to carbon-emitting power generation for data centers seeking the tax exemption.

Instead of conditions, the House is proposing accountability through study.

The new House budget proposes creating a commission of stakeholders and lawmakers to study the impacts and benefits of the data center industry in Virginia — required to report to the General Assembly by November 1, 2026.

Speaker Don Scott described the commission's scope directly: "Full investigation into energy costs, financial impacts, air quality, water conservation, renewable energy, and community impacts — with a report due November 1. So the 2027 General Assembly can pass real, lasting reform. Or if the governor would like, we can come back right after that report is out in November for a special session."

In plain terms: the exemption stays. A commission studies everything. The 2027 legislature — armed with real data — decides what comes next.

The Senate's Response — Still Not There

The governor's endorsement of the House plan puts enormous pressure on the Senate. But Senate Finance Chair Louise Lucas isn't there yet.

Senate Majority Leader Scott Surovell said the House proposal "is a good first step, but we have a ways to go and we look forward to continuing the dialogue with them to ensure we have a budget to put on the governor's desk by June 22."

Lucas was more pointed: "The House and Governor insist on studying the impact of data centers when the issue has already been studied by the legislature. Virginians are dealing with the negative consequences of data centers today. They expect action now rather than waiting another year and want us to protect their interests." Savant Labs

The Senate's core position hasn't changed: a study commission is a delay tactic, not a solution. The Senate wants real, immediate action — whether that means ending the exemption, capping it, or structurally changing how it works. A commission that reports by November and maybe prompts a special session is not what they came to Richmond to accomplish.

But the Senate is now isolated. The House has a proposal. The governor is backing it. The Senate is the last holdout — with 15 days left.

The Commission — What It Would Actually Do

Understanding the proposed commission matters because it's the vehicle through which Virginia's data center tax question will ultimately be resolved — whether through the commission's recommendations or through whatever the 2027 legislature does in response.

Speaker Scott described the commission's mandate: "It will be a full investigation into energy costs, financial impacts, air quality, water conservation, renewable energy, and community impacts — so the 2027 General Assembly can pass real, national reform." Quaderno

The commission would include stakeholders and lawmakers — meaning data center operators, utilities, environmental groups, local governments, and legislators would all have seats at the table. Its November 1 report would give the 2027 session a factual foundation for whatever changes come next.

The proposal also includes a $225 million reserve fund intended to help offset potential federal funding reductions — a nod to the fiscal uncertainty that has been a backdrop to the entire budget fight. SmartAsset

The budget itself is substantial. It includes nearly $350 million in increased funding for higher education, nearly $140 million in new funding for subsidized childcare, over $76 million in new funding for affordable housing, and $1.8 billion in state support for public education for 2026-2028 — including 3% raises, special education, at-risk students, school meals, and school construction. Savant Labs

This isn't a skinny budget designed just to keep the lights on. It's a full, substantial spending plan — and the governor called it one she's "proud to support."

The Timeline From Here

Here's exactly what has to happen in the next 15 days:

June 18 — House returns to Richmond.
The House will vote on its budget proposal. With the governor's backing and Speaker Scott's leadership, passage in the House is expected.

June 22 — Senate returns.
This is the moment of truth. Senate Democrats — led by Lucas — will either accept the House proposal, propose amendments, or hold firm on their position. Given the governor's endorsement of the House plan, the Senate faces enormous political pressure to accept something close to what the House is offering.

June 22-28 — Conference negotiations.
If the Senate proposes changes, a conference committee reconciles the differences. Both chambers then vote on the final agreed budget.

June 30 — Hard deadline.
A signed budget or Virginia's first-ever government shutdown. Spanberger has made clear she believes a deal will happen. "There is no other option," she said. Taxfyle

What the "Data Center Diva" Fight Was Really About

We've covered this story since February. But now that we can see the likely resolution, it's worth stepping back to understand what the four-month fight was actually about — because it matters for how Virginia handles this issue in 2027 and beyond.

The Senate's position was never really about the $1.6 billion in foregone revenue. It was about accountability. Virginia created an exemption in 2008 that was projected to cost $1.54 million per year. It now costs more than 100,000% of that projection. Nobody was held accountable for that explosion. Nobody was required to justify the ongoing cost. The industry just kept growing and the exemption kept costing more — automatically, without any legislative review.

The Senate wanted to break that cycle. The House and governor wanted to preserve the economic flywheel while building a framework for accountability going forward.

The commission is the compromise. It doesn't end the exemption. But it creates — for the first time — a formal mechanism for Virginia to understand exactly what it's getting and what it's giving up. The 2027 legislature will have real data to work with, not projections.

Speaker Scott framed it this way: "We're not in a position to demonize any industry that's been good partners with us, but we are in a position to make sure that we hold them accountable. The question is not how we got here. The question is how we fix it — but fix it responsibly, in a non-disruptive way." AccurateTax

What This Means for Data Center Operators and Tech Businesses

If the House budget passes — which now appears likely — here's the practical compliance picture for data centers and tech businesses in Virginia:

The exemption continues unchanged through at least 2027. Data centers that qualify under the existing rules — $150 million investment, 50 jobs — continue to receive the sales and use tax exemption on computer equipment and software purchases. No system changes needed. No new tax obligations.

The commission creates 2027 uncertainty. The November 1 report will almost certainly recommend some form of change to the exemption — whether a cap, a phase-down, new conditions, or a tiered structure. Data center operators should be preparing now for what a modified exemption landscape looks like starting in 2027.

The "honor our commitments" argument won this round. The governor's position — that Virginia should not retroactively change the rules on companies that invested based on existing incentives — carried the day. But the commission's findings may determine whether that argument holds in 2027 for new investments.

For tech businesses buying data center services in Virginia: No immediate cost changes. The services you're purchasing through Virginia-based data centers continue at current prices — the cost increase that would have come from removing the exemption is not happening in this budget cycle.

The Broader Signal: Study Commissions as a Compromise Tool

Virginia's resolution — if it holds — establishes a model that other states wrestling with similar exemption fights are watching closely.

Georgia, which faces a $2.5 billion data center exemption cost in fiscal 2026. Texas, which is expanding its own data center footprint aggressively. Pennsylvania, which is weighing whether to end its own data center exemption to fill a $6.8 billion deficit.

None of those states want to be the first to eliminate an exemption that's attracted billions in investment — and all of them are feeling the same fiscal pressure Virginia has been navigating. The "commission to study, legislature to act" model gives states a politically viable path: acknowledge the problem, gather real data, and defer the hard decision to a future session with better information.

Whether that model produces better outcomes than acting immediately is something Virginia's 2027 session will determine. But as a way to break a four-month budget impasse with 15 days to spare, it appears to be working.

Operating a data center or tech business in Virginia and want to understand exactly what the commission's findings might mean for your tax exposure starting in 2027 — or how to prepare for a potential exemption modification before the 2027 session? Book a free consultation with our team at sales.tax. We'll help you model the compliance implications of every likely outcome so you're not caught off guard when the commission reports in November.

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.

The Irony That Nobody Is Saying Out Loud

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.

How We Got Here — The Full Story

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 $1.6 Billion Number Nobody Predicted

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

The 8-Day Window

Here's the math that should alarm everyone.

• June 18 — House of Delegates reconvenes
• June 22 — State Senate reconvenes
• June 30 — Hard deadline for a signed budget

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.

What The Revenue Surge Changes — And What It Doesn't

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.

What a Virginia Shutdown Actually Looks Like

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.

Three Scenarios for the Next 22 Days

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

What Businesses Should Know Right Now

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.

The math in Virginia just got alarming.

Despite months of negotiations and even a special session, Virginia lawmakers remain deadlocked over a proposal to roll back tax breaks for data centers. The Virginia House is scheduled to return on June 18.

June 18. With a June 30 hard deadline.

That's 12 days to negotiate, draft, vote on, and pass a $212 billion two-year budget — or Virginia becomes the first state in modern history to shut down its government over a sales tax exemption fight.

Where Things Stand Right Now

We've been tracking this story since March. The positions haven't moved.

Del. Terry Kilgore summed it up plainly: "There's not been a lot of progress on the budget yet, the Senate and House are far apart. We only have until June 30, and unlike in the federal government, a lot of things start shutting down here in the commonwealth."

The regular session ended without a budget in March. A special session in April ended without a budget. Lawmakers returned briefly, recessed, and are now not coming back until June 18.

After a brief floor session in late April, state lawmakers recessed without a deal, leaving no clear timeline for when a compromise may be reached. Numeral

The only meaningful development since our last update: Virginia held a special congressional election on June 2, which shifted the state's U.S. House delegation dramatically. Virginia voters voted yes to change Virginia from having a 6-5 Democratic majority in the U.S. House of Representatives to one with an expected 10-1 Democratic majority — and negotiations on the budget may soon be more streamlined as a result. Whether that political shift changes the internal Democratic dynamics blocking a budget deal remains to be seen.

The Fight That Won't Move

The single sticking point — the one that has blocked every budget conversation for four months — is unchanged.

At the center of the impasse is Virginia's sales tax exemption for data centers — a policy estimated to reduce state revenue by between $1.6 billion and $1.9 billion annually. Virginia's data center exemption allows companies to avoid paying sales and use taxes on certain equipment, software, and infrastructure used to operate data centers. To qualify, companies must invest $150 million in Virginia facilities and create 50 jobs. Avalara

The Senate wants to eliminate the exemption effective January 1, 2027 — eight years before its scheduled 2035 sunset.

The House and Governor Spanberger want to preserve it — with new clean energy requirements attached.

The House budget removes any reference to phasing out the tax exemption, preserving the 2035 sunset date. Instead, House leaders attached new requirements: data centers must meet certain clean energy and environmental investment standards to maintain the exemption. Madrasaccountancy

An option to tie the exemption to banning the use of fossil fuels as a primary source of power, matching energy needs with clean energy sources, transitioning from diesel backup generators to batteries, and using energy more efficiently still exists — but it hasn't produced a deal. Avalara

The Promise Argument

One dimension of this fight that hasn't gotten enough attention is the contractual angle — and it's genuinely complicated.

"We made promises to these data centers when they came here that 'you'd have this tax credit,' and we as Virginians need to fulfill our promises," said Del. Terry Kilgore. Mass.gov

This isn't just political rhetoric. Many data center operators entered Virginia specifically because of the exemption — signing long-term lease agreements, infrastructure contracts, and power purchase agreements with the expectation that the tax treatment they were promised would last through 2035.

Eliminating the exemption eight years early doesn't just change their tax bill. It potentially voids the economic assumptions underlying billions of dollars of investment decisions. The legal exposure from that — companies arguing Virginia breached an implicit or explicit commitment — is real, and it's part of why the governor is more cautious than the Senate about elimination.

What Texas Is Watching

Here's the competitive dimension that makes Virginia's decision genuinely consequential beyond its own borders.

Texas is positioning to overtake Virginia as the world's largest data center market by 2030. Hyperscaler capital expenditure approaches $700 billion for 2026. At least six other states are pursuing their own incentive rollbacks. Madrasaccountancy

If Virginia eliminates or substantially curtails its exemption, the investment decisions that would have gone to Northern Virginia — the next hyperscaler campus, the next AI infrastructure deployment — start going to Texas instead. Or Georgia. Or Indiana. Or wherever the next favorable tax environment emerges.

The Senate's position is that Virginia's dominance is sticky enough to survive the change. The House and governor's position is that it isn't worth testing. Neither side can prove their case in advance — which is why the impasse has lasted four months.

The 12-Day Window

When lawmakers return June 18, here's what has to happen in 12 days:

• Conference committee must reach agreement on the data center exemption — the only unresolved major revenue question
• Both chambers must see and review the final budget text
• Both chambers must vote — and pass — the same budget
• Governor Spanberger must sign it

That's four sequential steps in 12 days, after four months of failure to complete step one.

Supporters of the rollback say the data center industry is costing the state billions, while opponents warn that changing the rules could hurt future business investment. Those positions haven't moved in four months. The only thing that's changed is the deadline is now close enough to see. Mass.gov

What a Shutdown Would Actually Look Like

Virginia has never shut down its government in modern history. Here's what July 1 looks like without a budget:

• State agencies cannot legally spend money beyond the most essential operations
• State employees face uncertainty about paychecks — payroll authorization requires budget authority
• Local school districts that depend on July state funding disbursements face immediate cash flow problems
• State contractors stop getting paid — halting everything from road maintenance to IT support
• Courts and law enforcement continue operating under essential services provisions, but with reduced support functions

Del. Kilgore was direct about the stakes: "Unlike in the federal government, a lot of things start shutting down here in the commonwealth." Mass.gov

The federal government can limp along under continuing resolutions for months. Virginia can't. The constitutional requirement for a balanced budget means there is no fallback mechanism. Either there's a budget by June 30, or the lights go out.

What Businesses Should Be Prepared For

For businesses operating in Virginia or selling into the state, the June 30 deadline creates three possible outcomes:

Scenario 1 — Deal before June 30. The data center exemption question is resolved — either eliminated, preserved with conditions, or replaced with a consumption tax. Compliance implications kick in depending on which version passes. Virginia avoids a shutdown.

Scenario 2 — Shutdown begins July 1. Virginia's state government enters unprecedented territory. Tax collection doesn't stop — Virginia's Department of Taxation continues operating as an essential function. But the broader economic disruption and uncertainty affects every business in the state.

Scenario 3 — Emergency continuing resolution. Virginia's constitution doesn't provide for a federal-style continuing resolution — but lawmakers could theoretically pass emergency legislation to extend current spending authority temporarily while negotiations continue. This hasn't been publicly discussed as a serious option, but if June 18 talks collapse quickly, it may become one.

The 12-day window starting June 18 is the most important period in Virginia's fiscal calendar in years. Whatever happens in that window will determine the state's data center tax landscape, its budget priorities, and its ability to fund government services — for the next two years.

Operating a data center, tech business, or any company with Virginia operations and want to understand what each possible budget outcome means for your sales tax obligations? Book a free consultation with our team at sales.tax. We'll walk through every scenario and help you prepare before June 30.

Virginia lawmakers are heading back to Richmond today.

They have 29 days.

Failure to enact a budget before July 1 would result in Virginia's first government shutdown in modern history — creating fiscal uncertainty for state agencies, local governments, and school divisions that depend on state funding.

And the only thing standing between Virginia and that shutdown is a single sales tax exemption that nobody in the state can agree on.

Virginia has yet to finalize its 2026-27 state budget, with negotiations completely stalled over the commonwealth's data center sales and use tax exemption — a policy estimated to reduce state revenue by between $1.6 billion and $1.9 billion annually. 95.3 MNC

The regular session ended without a budget. A special session in April ended without a budget. Lawmakers have remained at an impasse since the regular 2026 General Assembly session ended, despite Democrats controlling both chambers of the legislature and the governor's office. Indiana Capital Chronicle

Same party. Complete deadlock.

The Irony Nobody Is Saying Out Loud

Here's the detail that makes this story genuinely remarkable.

Virginia revenues are actually surging despite the budget standoff. The state is collecting more tax money than projected. The fiscal emergency driving this fight isn't a revenue shortfall — it's a philosophical disagreement about whether a $1.9 billion annual tax giveaway to one of the most profitable industries in history is still worth the price. Bipartisan Policy Center

A poll by Hart Research found 65% of likely Virginia voters oppose the current data center tax exemption, while 67% support ending it. A separate Washington Post poll reported nearly identical findings. 96.3XKE

Two-thirds of Virginia voters want the exemption gone. Every chamber of state government is controlled by Democrats. And yet — the budget is stalled because Democrats can't agree with each other.

Where Each Side Stands Today

The positions haven't moved since we first covered this story in March — which is exactly the problem.

The Senate, led by Finance Chair Louise Lucas, wants to eliminate the data center sales and use tax exemption entirely — effective January 1, 2027. "Data centers will employ very few permanent jobs for a sizable tax giveaway," Lucas said. The Senate argues ending the exemption early would generate nearly $1 billion in additional revenue over the biennium — money that could fund education, transportation, and infrastructure. WGN Radio

The House, backed by Speaker Don Scott, wants to preserve the exemption through its 2035 sunset date — with new conditions attached requiring data centers to meet clean energy and environmental standards. Governor Spanberger is siding with House Democrats who are going all in to preserve data center tax breaks, arguing data centers are the commonwealth's economic ace — providing billions in local tax revenue. Wkvi

Spanberger has repeatedly warned against allowing negotiations to go past June 30. "It's absolutely unacceptable if the General Assembly would allow for the state to go past July 1," she said. WGN Radio

The Numbers Behind the Fight

To understand why this exemption is so hard to let go — and so hard to keep — you need to see the full data picture.

The data center tax break was implemented in 2008 under Democratic Gov. Tim Kaine. At the time, the Department of Taxation said it would cost $1.54 million per year — about $2.37 million in today's dollars. The actual figure for fiscal year 2025 was between $1.6 billion and $1.9 billion — more than 100,000% above the original projection.

But the industry's counter-numbers are equally staggering.

A letter from Virginia Economic Development Partnership Chair Jason El-Koubi said the industry has generated 74,000 jobs, $5.5 billion in labor income, and $9.1 billion in GDP to Virginia's economy annually. In fiscal years 2024 and 2025 combined, data center companies reported investing $80.6 billion in Virginia and claiming $3.2 billion in sales tax exemptions.

The 2026 VEDP report estimated the data center industry generated $2.1 billion in total tax revenue in fiscal years 2024 and 2025 — meaning the industry is generating more in total tax revenue than it saves through the exemption. The Hill

The Senate says that's exactly why Virginia can afford to end the exemption — the industry is too entrenched to leave. The House says that's exactly why the exemption should stay — the investment flywheel is still spinning and pulling it would slow down.

What a Shutdown Would Actually Mean

Virginia shutting down July 1 isn't a hypothetical. It's a real operational scenario that state agencies are actively preparing for.

Without a budget, funding decisions remain uncertain for local governments, school systems, and state agencies that rely on state allocations. "It's a big issue for our localities — school boards, counties — they've got budgetary constraints also," said Del. Terry Kilgore.

Virginia is constitutionally required to pass a balanced budget. Without one, the state cannot legally spend money on anything beyond the most essential operations. State employees face uncertainty about paychecks. Local school districts that rely on state funding for July disbursements would face immediate cash flow problems. State contractors stop getting paid.

Senate Finance Chair Lucas, despite her hard line on the data center exemption, said she expects a deal before June 30. "Virginia will have a budget by June 30. We will have to get this right for Virginians." Indiana Capital Chronicle

Both sides are saying the right things publicly. The question is whether the private negotiations happening right now in Richmond can bridge a gap that has survived a full legislative session and a failed special session.

The Path to a Deal

Three options remain on the table as lawmakers return today:

Option 1 — Senate wins. The exemption is eliminated effective January 1, 2027. Data centers operating under existing agreements are given some transition period. The Senate gets the $1 billion in additional biennium revenue it wants. The House and governor accept the outcome to avoid a shutdown.

Option 2 — House wins. The exemption survives to 2035 with new clean energy conditions attached. The Senate accepts the conditions as a partial win — getting environmental accountability without the revenue hit.

Option 3 — The governor's middle path. Spanberger has floated a consumption-based energy tax on data centers as a compromise — taxing the electricity data centers consume rather than the equipment they buy, potentially generating revenue while preserving the investment incentive structure. This option gives both sides something: the Senate gets new revenue, the industry keeps the equipment exemption that drives investment decisions. The Hill

Of the three, Option 3 is the most likely path to an agreement — but the details of an energy consumption tax would need to be worked out from scratch, which takes time Virginia is quickly running out of.

What This Means for Businesses

The outcome of Virginia's budget fight has direct compliance implications — not just for data centers, but for any tech business operating in or selling into Virginia.

If the exemption is eliminated: Data centers purchasing or leasing computer equipment and software in Virginia will owe 5.3% state sales tax plus applicable local rates beginning January 1, 2027. For large facilities replacing servers every three to five years and running equipment budgets in the tens of millions, that's a material new cost requiring immediate contract and pricing adjustments.

If the exemption survives with conditions: Data centers need to understand the new environmental compliance requirements and whether their current operations qualify. An exemption with conditions attached is only valuable if you meet those conditions — and failing to meet them retroactively could trigger back-tax liability.

If a consumption tax is adopted: A new energy-based tax structure would require entirely new compliance infrastructure. Billing, metering, rate calculation, and remittance processes that don't currently exist would need to be built from the ground up.

For all tech businesses in Virginia: The broader signal is clear. Virginia is requiring balanced budgets — meaning lawmakers must agree on expected revenue before finalizing spending decisions. Whatever resolution emerges from these negotiations, the era of Virginia's data center exemption operating unquestioned and uncapped is over. The political and fiscal pressure to generate revenue from the industry will not disappear regardless of how June 30 resolves. WGN Radi

The Clock

29 days.

Lawmakers are in Richmond today. Negotiations are expected to be intense through the next two weeks. Both chambers need to vote on a final budget. The governor needs to sign it. And it all has to happen before July 1 — or Virginia enters territory it has never been in before.

The sales tax world will be watching.

Operating a data center, tech business, or any company with significant Virginia operations — and want to understand how the budget resolution could affect your sales tax obligations starting July 1? Book a free consultation with our team at sales.tax. We'll walk through every scenario and help you prepare for whatever Virginia's legislature decides in the next 29 days.

Virginia's entire state budget is being held hostage by a single sales tax exemption.

The data center tax exemption Virginia currently provides — worth $1.6 billion annually — remains unresolved as the Senate seeks to eliminate it entirely while the House wants to tie it to environmental compliance. The budget standoff has delayed the state budget, with a special session called to try to resolve the issue. TaxCloud

As of today, there is still no deal.

And the outcome will ripple far beyond Virginia's borders.

How a $1.54 Million Exemption Became a $1.6 Billion Problem

The story starts in 2008.

When legislators created the data center sales tax exemption in 2008, they were told it would cost up to $1.54 million a year — a modest price for bringing jobs to distressed communities. 10TV

The actual figure now exceeds the original estimate by more than 100,000%. Sales Tax Calculator

Under the current law, data centers that invest $150 million and create 50 jobs qualify for exemption from the 5.3% state sales tax on computer equipment and software. The exemption was originally set to sunset in 2035. Mass.gov

What lawmakers didn't anticipate in 2008 was that Virginia would become the most important data center market on earth. Virginia has bloomed into the data center capital of the world, with more server farms than any other state or country. In 2025 alone, the industry reported the state waived $1.9 billion in sales taxes. Numeral

The exemption worked — spectacularly. And that success created a fiscal problem that now threatens to blow up the state budget.

What the Senate Wants

The Senate's position is unambiguous.

The Senate budget proposal eliminates the data center retail sales and use tax exemption effective January 1, 2027 — eight years before it was scheduled to sunset.

Senate Finance Chair Louise Lucas has taken a hard line stance, saying the incentive has grown dramatically as the data center industry expanded and that ending it would recapture billions in foregone revenue to fund public education, infrastructure, and transportation.

Lucas said she was not worried data centers would leave Virginia. "A lot of folks are saying they're going to be leaving. I don't believe that's going to happen." Galvix

Senate leaders argue the early expiration would generate nearly $1 billion in additional revenue over the biennium, redirecting those funds into transportation and water infrastructure projects.

What the House Wants

The House of Delegates took a starkly different approach — removing any reference to phasing out the tax exemption and preserving the 2035 sunset date. Instead, House leaders attached new requirements: data centers must meet certain clean energy and environmental investment standards to maintain the exemption.

House Appropriations Chair Luke Torian told lawmakers: "The other body has taken the position that a budget cannot be finalized without eliminating the data center sales tax incentive. This is not a position the House can or should agree to." Avalara

The House argument is fundamentally about jobs and economic competitiveness. House Speaker Don Scott said: "I love the jobs that they create, and I love Virginia's economy to do well. We have to be realistic about what we're producing — good union jobs." Quicktaxcalc

Where the Governor Stands

Newly elected Governor Abigail Spanberger — a moderate Democrat who took office in January — has signaled caution about altering a policy widely credited with helping Virginia become the data center capital of the world. Tax Foundation

Spanberger has floated a middle path — a new "consumption" tax for data centers rather than ending the exemption completely, with firms potentially grandfathered in until 2035 or the exemption lowered rather than eliminated entirely.

The governor has until May 22 to make any final signatures or vetoes on bills. Negotiations on the budget may be resolved by June — the hard deadline, since Virginia's state government would shut down without a passed budget by June 30.

The Industry's Counter-Argument

The data center industry isn't taking this quietly.

Nicole Riley, representing the Data Center Coalition, pushed back hard: "At a time when Virginia's economy is facing significant challenges, this would be a self-inflicted hit to our economy that will cost Virginia billions in economic impact and tax revenue, and jeopardize tens of thousands of jobs." Fox 59

Riley also argued that the state could lose out on an estimated $1.3 billion in net tax revenue over five years due to decreased investment in new facilities or renewed computer technology if the exemption disappears.

The counterintuitive argument: taxing the industry more could actually generate less total tax revenue, because data centers would slow their Virginia investments or take future projects to other states.

It's the classic economic incentive debate — and there's no clean answer. An assessment of Georgia's data center industry found that state's tax exemption attracted 30% of its data centers, after the state had previously assumed 90% of growth was due to tax incentives. The reliability of power, labor force, and other infrastructure weigh into site location as well. Virginia's dominant position in the market may be stickier than the Senate assumes — or it may not.

Why This Matters Beyond Virginia

Virginia is not alone in asking these questions. The numbers have gotten too big to ignore everywhere.

At least six other states introduced or advanced legislation to roll back, repeal, or restrict data center tax incentives in the first six weeks of 2026 alone, with more than 300 data center bills filed across 30-plus states.

Georgia expects to lose $2.5 billion to data center sales tax exemptions in fiscal year 2026 — a figure 664% higher than the state's prior estimate of $327 million. That kind of revenue surprise changes political calculations fast.

The pattern is the same everywhere: states offered generous exemptions to attract a nascent industry, the industry grew far beyond anyone's projections, and now legislators are staring at billion-dollar tax giveaways and asking whether the trade-off still makes sense.

Virginia's resolution — whatever form it takes — will set the template for how other states answer that question.

What Businesses Should Watch For

If the Virginia Senate gets its way and the exemption ends January 1, 2027, the compliance implications are immediate and significant.

Data centers operating in Virginia would suddenly owe 5.3% state sales tax — plus applicable local rates — on every piece of computer equipment and software they purchase or lease. For facilities that replace servers every three to five years and run massive equipment budgets, that's not a rounding error. It's a material cost increase that will need to be reflected in contracts, pricing, and financial projections.

For the tech industry broadly, the Virginia fight is a signal: the era of generous, unquestioned sales tax exemptions for digital infrastructure is ending. The question is no longer whether states will revisit these incentives — it's when and how fast.

Operating a data center or tech business in Virginia — or a state currently reconsidering its own digital infrastructure exemptions? Book a free consultation with our team at sales.tax. We'll help you understand your current and future sales tax exposure before the rules change underneath you.