Virginia's Data Center Electricity Consumption Tax is a first-in-the-nation levy of $0.011 per kilowatt-hour on all electricity consumed at data centers in the Commonwealth. Enacted in Item 3-5.24 of the 2026-2028 budget (HB 30, 2026 Special Session I, Chapter 1) and effective July 1, 2026, it is paid by data center operators, including self-suppliers, capped at $600 million per fiscal year with pro rata refunds above the cap, and expires June 30, 2028. The first collection fell in September 2026 and covered every kilowatt-hour consumed from July 1 through September 1.
But who actually writes the check, how big is the bill for a real facility, and what happens to Virginia's much larger sales tax exemption? This guide walks data center owners, operators, tenants, and site selectors through the mechanics, the first months of implementation, and the December 15, 2026 legislative report that will open the next round of the debate.
Key Takeaways
| 01 | The tax is $0.011 per kWh on every kilowatt-hour a data center consumes, from any source. Item 3-5.24 applies it to utility-supplied, cooperative-supplied, competitively supplied, and self-supplied electricity, with no carve-out for on-site renewables. |
| 02 | Collections are capped at $600 million per fiscal year, with the excess refunded pro rata. Revenue above the cap goes to a nonreverting fund and is returned to taxpaying operators in proportion to their share of that year's collections, without interest, beginning in the fiscal year that starts July 1, 2027. |
| 03 | The legal payer is the "data center operator," which in a multi-tenant building means the party on the utility account. Utilities collect the tax as a line item on the monthly bill and remit it to the State Corporation Commission (SCC); self-suppliers remit directly. |
| 04 | A 100 MW facility running at 80 percent utilization owes roughly $7.7 million per year. The math scales linearly: every megawatt of average load costs about $96,360 per year at the $0.011 rate. |
| 05 | The sales and use tax exemption survived through June 30, 2035, and the new tax sunsets June 30, 2028. The exemption is worth an estimated $1.3 billion this fiscal year; the Joint Subcommittee on Tax Policy must report on its future by December 15, 2026. |
The tax is small per kilowatt-hour and large in aggregate. At $0.011, one energy researcher quoted by Technical.ly called it "pretty minimal compared to the actual electricity costs," but across the 633 data centers the Commonwealth hosts it is budgeted to produce $600.0 million in each year of the biennium, about $1.2 billion in total. For operators, the immediate work is contractual and financial: confirming who bears the line item, modeling the annual exposure, and tracking the refund position as statewide collections approach the cap.
The tax was the price of a budget deal, not a considered piece of tax policy. Data center taxation deadlocked Virginia's 2026 budget negotiations for months: the Senate, led by Finance and Appropriations Chair Louise Lucas (D-Portsmouth), wanted to end the retail sales and use tax exemption for data center equipment, the House of Delegates pushed environmental standards, and the impasse threatened the Commonwealth's first partial government shutdown. On June 22, 2026, legislators broke the logjam by approving a two-year, roughly $205 billion budget that kept the exemption and added the consumption tax instead. The conference report passed the House 71-22 and the Senate 23-16, according to Virginia Mercury.
Governor Abigail Spanberger (D) supported preserving the exemption through its 2035 term and claimed a hand in the compromise. The General Assembly accepted her 14 amendments in a reconvened session, and she signed the budget on June 30, 2026, two days before the fiscal year began. The tax took effect the next day.
"This is a compromise proposal, one my administration helped craft, and it builds a strong foundation for further discussions about the future of this industry in Virginia on issues like environmental and community impact."
Gov. Abigail Spanberger (D), on the data center consumption tax in the 2026-2028 budget
Source: Virginia Mercury, June 22, 2026. Photo: official portrait, Office of the Governor of Virginia.
The stakes are larger in Virginia than anywhere else. The Commonwealth hosts 633 data centers, the largest concentration in the world, most of them in Northern Virginia's "Data Center Alley," according to Technical.ly. The budget's own estimate projects the tax will deliver $600.0 million to the general fund in each year of the biennium. Senate Majority Leader Scott Surovell (D-Fairfax) put it plainly at the June 30 reconvened session: data centers "are going to contribute about $1.1, $1.2 billion over the biennium to help fund our government."
The data center operator bears the tax; the utility is only the collection agent. Item 3-5.24 imposes the tax "upon every data center operator," defined broadly as any person who owns, operates, or occupies a data center in Virginia, or who self-supplies electricity to one. Where several parties fit that definition for a single facility, such as a landlord, a colocation provider, and a tenant, the budget language assigns liability to the person responsible for paying the electric utility account at the applicable service point.
In practice, that means:
One scope note: the tax targets compute, not connectivity. The definition covers facilities with at least one megawatt of power distribution and cooling capacity whose primary function is centralized storage, management, and processing of digital data, and it excludes facilities whose primary function is providing internet access or communications services. Greenberg Traurig reads that carve-out as aiming the tax squarely at cloud and AI compute.
Multiply metered (or self-generated) kilowatt-hours by $0.011. The tax ignores rate schedules, demand charges, time of use, and fuel mix. There is no exemption threshold below which a covered facility pays nothing, and no discount for efficiency.
Data Center Electricity Consumption Tax: Mechanics
| Element | Rule |
|---|---|
| Rate | $0.011 per kWh consumed, assessed monthly |
| Base | All electricity consumed at the data center, from any source |
| Payer | The data center operator; for utility-served sites, the party on the utility account |
| Collection | Monthly, by the supplying utility or provider; self-suppliers remit directly to the SCC |
| Annual cap | $600 million to the general fund per fiscal year; excess held for refunds |
| Refunds | Pro rata by share of that year's collections; credited on utility bills or paid to self-suppliers; no interest |
| Effective | July 1, 2026; first collection September 2026 (covering July 1 to Sept. 1) |
| Sunset | June 30, 2028, unless extended |
Sources: Item 3-5.24 #1c, HB 30 Conference Report (2026 Special Session I); Greenberg Traurig; Williams Mullen.
Consider a 100 MW facility operating at 80 percent average utilization:
A 500 MW hyperscale campus at the same utilization owes roughly $38.5 million per year; at full load, about $48.2 million. The table below shows how the exposure scales.
Annual Tax Exposure by Facility Size and Utilization
| Facility | Utilization | Annual kWh | Annual tax |
|---|---|---|---|
| 20 MW colocation | 70% | 122.6 million | $1.35 million |
| 100 MW facility | 80% | 700.8 million | $7.71 million |
| 100 MW facility | 100% | 876.0 million | $9.64 million |
| 500 MW campus | 80% | 3.50 billion | $38.5 million |
| 500 MW campus | 100% | 4.38 billion | $48.2 million |
Sources: Crawford Partners calculations at $0.011 per kWh; 8,760 hours per year.
The refund mechanism matters at these scales. Greenberg Traurig's example assumes statewide collections of $650 million in a fiscal year, leaving $50 million refundable after SCC administrative costs. A facility that paid 1 percent of total collections ($6.5 million) would receive $500,000 back, credited through its utility. Refund distributions begin in the fiscal year starting July 1, 2027, based on the prior year's excess, so the first refunds for FY 2027 collections will not appear until FY 2028. Operators should book the tax at the full rate and treat any refund as contingent.
Two administrative dates have now passed. The budget directed the SCC to issue implementation guidelines 60 days after passage, which put the deadline in late August 2026, and it fixed the first collection in September 2026, with that payment covering all consumption from July 1 through September 1, 2026. Operators that have not yet seen the line item on a summer bill should expect it in the September billing cycle and confirm the treatment with their supplier or, for self-supplied load, with the SCC directly.
The two run in parallel: data centers now pay a new operating tax while keeping a far larger capital-expenditure exemption. Virginia's Data Center Retail Sales and Use Tax Exemption (Va. Code § 58.1-609.3(18)) exempts qualifying computer equipment and software purchases for operators that invest at least $150 million, create at least 50 new jobs at one and one-half times the prevailing local wage, and sign a memorandum of understanding with the Virginia Economic Development Partnership; reduced thresholds of $70 million and 10 jobs apply in distressed localities. It runs through June 30, 2035, with extensions to 2040 and 2050 for operators meeting statewide investment thresholds of $35 billion and $100 billion. It is the state's largest economic development incentive: JLARC found data centers avoided $2.7 billion in state sales tax from FY 2015 through FY 2024, 53 percent of all state incentive spending in that period, and forgone revenue reached $1 billion in FY 2024 alone. The current-year estimate is $1.3 billion.
For project modeling, the net effect depends on where a facility is in its lifecycle. A build-out purchasing $400 million of exemption-eligible equipment saves roughly $21.2 million at Virginia's 5.3 percent statewide base sales tax rate, and about $24.0 million at the 6.0 percent combined rate that applies in Loudoun, Prince William, Fairfax, and the rest of Northern Virginia, according to Virginia Tax. The same facility at 100 MW and 80 percent utilization pays about $7.7 million per year in consumption tax. Capital-intensive expansion still nets out strongly positive; steady-state operations now carry a new line item that is capped statewide but not at the facility level.
Exemption Savings vs. Consumption Tax for a 100 MW Build
| Item | Amount | Basis |
|---|---|---|
| Sales tax saved on $400M of eligible equipment (statewide rate) | $21.2 million | 5.3% base rate |
| Sales tax saved on $400M of eligible equipment (Northern Virginia) | $24.0 million | 6.0% combined rate |
| Consumption tax, 100 MW at 80% utilization | $7.7 million per year | $0.011 per kWh |
| Consumption tax through the June 30, 2028 sunset | About $15.4 million | Two fiscal years |
| Consumption tax, 100 MW at 80%, if extended through 2035 | About $69 million | Nine fiscal years |
Sources: Va. Code § 58.1-609.3(18); Virginia Tax rate schedule; Item 3-5.24; Crawford Partners calculations.
The budget also layered on non-tax obligations and a formal review of the exemption itself. DEQ must define "cooling water scarcity areas" by July 1, 2027, where the use of potable water for cooling could harm local supply; after that date, new facilities in the Eastern Virginia Groundwater Management Area must use air cooling, 100 percent recycled water or stormwater, or closed-loop systems. A DEQ study on retrofitting existing facilities in those areas was due October 15, 2026, and DEQ must adopt noise abatement regulations before the end of 2029, with a $32,500 per day penalty for violations thereafter. Separately, Item 1 #7c directs the Joint Subcommittee on Tax Policy, twelve legislators drawn from Senate Finance and Appropriations, House Appropriations, and House Finance, to study the sales and use tax exemption, other states' taxes and moratoriums, the 2024 JLARC recommendations, and "revenue mechanisms" during the 2026 interim and to report recommendations to the General Assembly by December 15, 2026. That report is the document that will frame the 2027 session's bills on both the exemption and the 2028 sunset.
Virginia is the first state to tax data center electricity consumption directly, and legislators elsewhere are watching the $600 million figure. Greenberg Traurig assesses that the design, a revenue cap, refunds, and a two-year sunset, signals a budget-balancing measure rather than an attempt to deter development, and notes other states "may follow this lead and impose their own tax on electric consumption." The 2026 landscape through mid-September:
The pattern: states are no longer competing solely on incentive generosity. Operators should underwrite new projects assuming energy-linked taxes, incentive caps, or conditions in most major markets. Virginia's own debate is not over either: on August 30, 2026, Virginia Business reported Sen. Glen Sturtevant (R-Colonial Heights) calling for an immediate statewide moratorium on the grounds that data centers "already receive enormous tax breaks," while Senator Lucas has said the June compromise "is not the end of the conversation" about repealing the exemption. For the broader trend, see our series memo, "The Data Center Incentive Reckoning."
Yes. Self-supplied electricity, including behind-the-meter solar, wind, and gas generation, is taxed at the same $0.011 per kWh. The operator remits directly to the SCC monthly and files quarterly usage reports with DEQ. There is no renewable-energy exemption.
The excess, less SCC administrative costs, goes into a nonreverting refund fund. Each operator receives a refund proportional to its share of that fiscal year's collections, credited through its utility or paid directly if self-supplied, without interest, in the following fiscal year. The first refund cycle begins July 1, 2027.
No. The exemption for qualifying data center equipment purchases under Va. Code § 58.1-609.3(18) remains in force through June 30, 2035. The consumption tax is an additional, separate levy on operations.
June 30, 2028, unless the General Assembly extends it. Expect the extension question to be contested in the 2027 and 2028 sessions alongside the exemption review. The Joint Subcommittee on Tax Policy's recommendations, due December 15, 2026, will be the first formal signal of whether legislators intend to let the tax lapse, extend it, or trade it for changes to the exemption.
Timeline and Next Steps
| Date | Milestone |
|---|---|
| Jun. 22, 2026 | General Assembly adopts HB 30 conference report with Item 3-5.24 (House 71-22, Senate 23-16) |
| Jun. 30, 2026 | Governor Spanberger signs the 2026-2028 budget (Chapter 1) |
| Jul. 1, 2026 | Consumption tax takes effect at $0.011 per kWh |
| Late Aug. 2026 | SCC implementation guidelines due (60 days after passage) |
| Sep. 2026 | First collection, covering consumption from Jul. 1 through Sep. 1, 2026 |
| Oct. 15, 2026 | DEQ retrofit study on existing facilities in cooling water scarcity areas due |
| Dec. 15, 2026 | Joint Subcommittee on Tax Policy report on the exemption and data center impacts due |
| Jan. 2027 | 2027 Regular Session convenes; exemption and extension bills expected |
| Jul. 1, 2027 | DEQ cooling water scarcity areas defined; Eastern Virginia groundwater cooling rules apply; first refund cycle begins |
| Jun. 30, 2028 | Tax sunsets unless extended |
| Jun. 30, 2035 | Sales and use tax exemption expires unless extended |
Sources: Item 3-5.24 #1c and Item 1 #7c, HB 30 Conference Report; Virginia Mercury; LegiScan.
What to do now: Confirm that the September bill carries the new line item and that the kilowatt-hour base matches your metered consumption. Map who bears the tax across every lease, colocation agreement, and power contract at each Virginia site, and amend pass-through language before renewals. Model exposure at the facility level using average load, not nameplate capacity, and book refunds as contingent until the SCC publishes FY 2027 collections. Finally, calendar December 15, 2026: the Joint Subcommittee's recommendations will tell you whether to plan for a 2028 sunset or a permanent levy, and whether the 2035 exemption is back on the table.
© Copyright 2026. The views expressed herein are those of the author(s) and not necessarily the views of Crawford Partners, its management, its subsidiaries, its affiliates, or its other professionals. Crawford Partners is not a law firm and cannot provide legal advice.