More than 10 U.S. states are pausing, cutting, or reexamining tax incentives tied to data centers as the AI buildout drives costs far beyond earlier projections. For years, states used tax breaks to lure projects from major tech companies including Amazon, Meta, and Google. That strategy is now under heavier scrutiny as the scale of AI-related infrastructure expands.
Ohio stands out most sharply. The state’s sales tax exemption for data centers is expected to reduce tax revenue by about $1.6 billion in 2025, compared with an earlier estimate of $136 million, or roughly 11 times higher. Governor Mike DeWine has already paused approval of new applications for data center tax exemptions. Even so, some previously negotiated incentives for companies such as Amazon, Meta, and Google can continue for decades, and state lawmakers are pushing to renegotiate those terms or impose new taxes.
Other states are making changes as well. New Jersey has cut $250 million in planned but not yet issued tax credits for AI and data centers. Virginia has kept its sales tax exemption on equipment, but since July this year it has started charging certain data centers an electricity consumption tax of $0.011 per kilowatt-hour.
More than 10 U.S. states are pausing, cutting, or reviewing tax incentives for data centers as the AI infrastructure boom sharply increases the fiscal cost of those programs.
More than a decade ago, states used tax exemptions to attract data center investment from large technology companies including Amazon, Meta, and Google. As AI-related construction accelerated, the size of those incentives expanded quickly, and some states found that the real cost was far above what had originally been projected.
Ohio posts the biggest gap
Ohio is the clearest example. The state’s sales tax exemption for data centers is expected to reduce state revenue by about $1.6 billion in 2025, versus an earlier estimate of $136 million. That is roughly 11 times the original projection.
Governor Mike DeWine has paused approvals for new data center tax exemption applications. Some previously negotiated incentives for Amazon, Meta, and Google, however, can remain in place for decades. State lawmakers are now pushing to renegotiate those deals or add new taxes.
New Jersey and Virginia also revise policy
New Jersey has eliminated $250 million in planned AI and data center tax credits that had not yet been issued.
Virginia has kept its sales tax exemption for equipment, but since July this year it has imposed an electricity consumption tax of $0.011 per kilowatt-hour on certain data centers.
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