The Issue

Roughly 40 states offer billions of dollars in state and local data center subsidies, through sales and use tax exemptions, preferential utility rates, and property tax abatements. When states offer subsidies, they forgo vital tax revenue and undermine their general funds, which support key public services and infrastructure projects. These subsidies are offered with minimal requirements and transparency, making the true extent of their impact unclear. Subsidy guardrails can address the tax, employment, and economic impacts of data center development.

The Toolkit

State legislatures create and govern the rules for nearly every major data center subsidy and they are the most effective point of leverage for minimizing the tax, employment, and economic impacts from data centers. Legislatures can impose moratoria on data center construction, pause or sunset subsidy programs, implement stringent subsidy reforms, levy new taxes and fees on data centers, and preserve community choice.

Legislative Highlights

• Maine, LD 713 (2026, enacted) excludes new data centers from being eligible for tax subsidies under two broad-based programs: the Business Equipment Tax Exemption, which provides 100 percent property tax exemptions, and the Dirigo Business Incentives, which provides refundable income tax credits based on investment amounts and employment. This prohibits new projects from benefiting from major tax breaks in the state (Maine does not have sales and use tax exemption for data centers). The law also requires the Department of Economic and Community Development to study and produce a report on all possible subsidies that data centers could benefit from.
• Washington’s SB 6231 (2026, enacted) eliminated the sales and use tax exemption for data center equipment replacement, affecting both existing certifications and new applicants. It removed “replacement server equipment” from the list of purchases eligible for the exemption. Notably, the bill’s clear statutory definitions distinguished replacement equipment from original equipment, a model other states could adopt to avoid ambiguity in their own statutes.
• Nevada’s data center tax abatements program (Nev. Rev. Stat. 360.754, or see program requirements description) requires participating companies to hire Nevada residents, including a requirement that at least 50 percent of construction jobs be filled by state residents (although this requirement can be waived under certain circumstances). Companies must offer a health insurance plan to all workers and cover at least 65 percent of the premium costs. Additionally, large data center projects must provide workers with 12 weeks of family and medical leave and pay workers no less than 55 percent of their regular wage during their leave.
• Connecticut Public Act 21-1 requires data center developers to enter into a negotiated host municipality fee agreement with the municipalities in which they will be located. Department of Economic and Community Development  (DECD) agreements with data centers and host municipalities must include provisions to recoup taxes exempted under the act if the data center fails to meet agreement terms. Further, the DECD must notify any municipalities where data centers will receive property tax exemptions and identify the relevant parties, terms of the agreement, and effective date.
• Illinois HB5513 / SB4016 (2026, proposed) Notably, the bill creates the Hyperscale Data Center Public Benefits and Affordability Fund, funded by annual fees based on data centers’ peak demand (up to $12 million annually). Funding will support state programs such as: Low-Income Home Energy Assistance, Home Weatherization, and Utility Disconnection Avoidance.The Public Benefits and Affordability Fund also supports the Environmental Justice Grant Fund and the Data Center Community Intervenor Compensation Fund, created in the bill, which provides financial support to community representatives participating in legal or regulatory proceedings for data centers. All funds will be prioritized in communities with data centers and low-income electric customers. Of note, the bill offers special protections for Equity Investment Eligible Communities (EIEC), which the state has designated as historically discriminated communities for priority equitable investment. Data centers cannot be built within three miles of EIECs, unless a thorough cumulative impact assessment has been done and imposed emissions limits to mitigate identified impacts.

Further Reading

For more information on data centers’ fiscal and economic impacts and policy tools to address them, explore the below resources from other organizations:

• Good Jobs First | Shutting Down Data Center Subsidies
• Multistate | Data Center Labor Standards Gain Traction
• Environmental Protection Network | The Hidden Health Costs of AI Data Centers
• Urban Institute | 25 Questions for States and Cities to Ask During a Moratorium and Before a Data Center Breaks Ground 
• Pew Charitable Trust | Economic Development Incentives Evaluation Toolkit
• Good Jobs First | Using Economic Development Incentives for Equity and Shared Prosperity 
• National Conference of State Legislatures | Subsidizing Servers: How States are Competing to Attract Data Centers
• University of North Carolina at Chapel Hill | Creating Effective Citizen Participation in Local Government Budgeting: Practical Tips and Examples for Elected Officials
• NAACP | Community Benefits Agreement Template

Note: With the rapid buildout of data centers across the country, states must have strong policies to prevent their negative impacts on the environment, climate, energy systems, and local communities. Climate XChange’s policy toolkits, educational programming, and technical assistance are solely focused on addressing these impacts. Our organization is not involved in advocacy, nor does it have the expertise to assess the broader societal and economic effects of widespread artificial intelligence adoption in the United States.