Minnesota Gives Data Centers a 35-Year Tax Break

In June 2025, Minnesota rewrote its data center incentive through 2025 First Special Session Chapter 12 (H.F. 16), signed by Gov. Tim Walz (Democratic-Farmer-Labor, or DFL) on June 14, 2025. The law extends the state's sales tax exemption on data center information technology (IT) equipment and software from 20 years to 35 and creates a new "qualified large-scale data center" tier for projects investing $250 million or more. The same rewrite attached three conditions to that tier: a $2 million-to-$5 million annual fee payable to the Department of Commerce, mandatory prevailing wage, and a full clawback tied to green-building certification. The companion omnibus tax act, Chapter 13 (H.F. 9), ended the electricity exemption for every data center in the state, effective July 1, 2025.

The exemption changes took effect for sales and purchases after June 30, 2025. By December 15, 2026, the Public Utilities Commission must establish by order, for each public utility, the definition and characteristics of a "very large customer" class under Minn. Stat. § 216B.1622, which will govern how the largest new loads (100 megawatts or more in Xcel Energy's case) pay for power in Minnesota. That deadline is 91 days away.

The data center bill (H.F. 16) passed the House 85-43 and the Senate 40-26 in the June special session, and the electricity repeal in the tax act was projected at the time to raise roughly $140 million over four years, according to the Minnesota Reformer. Lawmakers paired a longer runway for hardware with the state recapturing a share of the power bill.

What Changed, Provision by Provision

The rewrite touches seven provisions. Exhibit 1 tracks each one from the pre-2025 law to the enacted text, with section citations to Chapter 12 and the amended statutes. Because the $250 million large-scale test counts tenants' spending, colocation operators can reach it on their customers' investment.

Two drafting details affect how the tiers apply. First, Chapter 12 defines a "data center" for energy-law purposes as a facility designed for a load of 100 MW or more (§ 216B.02, subd. 11), and the § 216B.72 fee schedule starts at 100 MW of peak demand. As written, a $250 million campus engineered to a 95 MW peak sits in the top exemption tier while paying no fee, and arguably sits outside the energy title's data center definition entirely. Second, the Department of Revenue's own Qualified Data Centers page still carried the old 20-year/June 30, 2042 language in its refund guidance as of its August 18, 2025 update, even as the same page states the 35-year term. Where the page and the statute differ, the statute and the DEED certification letter control.

How the Changes Apply by Facility Type

Existing DEED certificate holders

Existing certificate holders' window grew from 20 years to 35, with no new fee, wage, or sustainability obligations, but their electricity became taxable on July 1, 2025, regardless of when they certified. That adds 6.875% (plus applicable local tax) to every power invoice. Equipment and software exemptions still run through the pay-then-refund process under § 297A.75, using Form ST11, with two refund requests permitted per calendar year.

New facilities under $250 million

The legacy "qualified data center" tier remains open, now with a 35-year window and none of the large-scale tier's strings. The thresholds are unchanged: $30 million within 48 months and 25,000 square feet. For projects in the $150 million-to-$400 million range, the tier matters. Certifying under the legacy tier avoids the fee, the prevailing wage mandate, and the clawback, but the tier a project lands in follows the facts of the facility and its tenants' aggregate investment, and the statute provides no election.

Hyperscale operators at 100 MW or more

Hyperscale operators get the 35 years and pay for it three ways: the annual fee, the taxable electricity, and, most consequentially, whatever the PUC's very-large-customer orders say about cost allocation. Section 216B.1622 assigns costs attributable to very large customers to their class, requires protections so other customers are not exposed to stranded costs, and authorizes the commission to approve, modify, or reject a tariff or electric service agreement. The utility dockets are already under way. The PUC's very large electric customers page shows the commission has defined very large customers for Xcel Energy's tariffs as new loads of 100 MW or more, plus "system intensive" new loads of 20 MW to under 100 MW (Docket 25-289), directed Minnesota Power to file an updated proposed tariff by July 15, 2026 (Docket 26-126), and taken a petition from Otter Tail Power for a new very-large-customer class (Docket 26-211). Dakota Electric Association has filed a contract-rate tariff for members at 50 MW or more (Docket 26-243). For Minnesota interconnection or electric service agreements signed in 2027, the record in these dockets will shape rate design.

A Worked Example: What the 2025 Rewrite Does to a $1 Billion Campus

The example follows a hypothetical company that builds a $1 billion, 150 MW-peak campus placed in service in 2028. All figures are nominal, at the 6.875% state sales tax rate, with local taxes excluded. On the exemption side, an initial IT fit-out of $500 million avoids $34.4 million in sales tax, and six refresh cycles of $300 million every five years avoid $123.8 million, for a total exemption value of roughly $158 million over 35 years.

On the cost side, a 105 MW average load (70% utilization) uses about 920 gigawatt-hours (GWh) a year. At $65 per megawatt-hour (MWh), that is a $59.8 million annual power bill and $4.1 million a year in sales tax, or about $144 million over 35 years at flat power prices, a conservative assumption. The Commerce fee at the 100-250 MW tier adds $2 million a year, or $70 million over 35 years. Assuming $400 million of non-IT construction, a 35% labor share, and a 5%-15% premium, prevailing wage adds $7 million to $21 million one time. Exhibit 2 sets the two sides against each other.

At these assumptions, the campus takes on $221 million to $235 million of new costs against $158 million of exemption value, so the conditions outweigh the exemption for a power-dense campus. The balance flips only if IT refresh spending runs materially higher, as in AI training builds, or load runs materially lower. The pre-2025 regime would have exempted the electricity too, but for only 20 years. The 2025 law in effect trades hardware relief for power revenue.

Minnesota converted its data center incentive from a power subsidy into a hardware subsidy, and the economics now turn on load. At the modeled assumptions, a 150 MW campus hands back roughly 90% of the equipment exemption's value in electricity tax alone, and above 250 MW the fee tiers make the trade worse. The December 15 PUC deadline also matters, because full cost assignment to the very-large-customer class could raise what hyperscalers pay for Minnesota power. Refresh-heavy AI training builds are likely to keep siting in Minnesota, and steady-state cloud load may drift toward neighboring states. If 2027 certifications skew below 100 MW, the Legislature is likely to revisit the fee-schedule gap.

The 2026 Session and the December PUC Deadline

The 2026 session, which adjourned May 18, tested whether Minnesota would tighten further, and it did not. A bill restricting local-government non-disclosure agreements, born of data center siting secrecy, passed the Senate with bipartisan support but was blocked in the tied House. A bill requiring large industrial water users (more than 100 million gallons a year, or more than 50% of a city's authorized use) to obtain their own Department of Natural Resources (DNR) permits, carried by Sen. Ann Johnson Stewart (DFL-Minnetonka) and Rep. Kristi Pursell (DFL-Northfield), advanced in both chambers without passing, according to MPR News and the Minnesota Center for Environmental Advocacy's session recap. A statewide moratorium was debated but never brought to a vote, and union and industry opposition stalled the broader regulatory push. The $1.24 billion capital investment bill, passed 122-11 in the House and 60-7 in the Senate on May 17, signed into law May 27, 2026 (Chapter 130), and ceremonially signed by Gov. Walz on June 5, carried no data center provisions. The 2025 framework remains in place.

Exhibit 3 lays out the four clocks now running. The PUC's December 15 deadline is the only one fixed in statute for every utility. The green-building certification deadline and the 60-month investment window run from each facility's own placed-in-service and first-investment dates, and the 2027 session will follow a November election that decides whether the House stays tied.

What to Do Now

This matters to anyone holding a DEED data center certificate, planning a Minnesota facility in the $150 million to $400 million range, or siting a 100 MW-plus load in the state. The PUC's deadline to set very-large-customer classes is December 15, 2026, and those orders will shape what hyperscale loads pay for power. If you want a read on fit before December 15, reach out to our team.

References

1. Minnesota Revisor of Statutes, Laws of Minnesota 2025, First Special Session, Chapter 12 (H.F. 16), approved June 14, 2025.
2. Minnesota House Research Department, Act Summary, Chapter 12, 2025 First Special Session (Data Centers), June 2025.
3. Minnesota Revisor of Statutes, Laws of Minnesota 2025, First Special Session, Chapter 13 (H.F. 9), omnibus tax act, June 2025.
4. Minnesota Department of Revenue, Qualified Data Centers, updated August 18, 2025.
5. Minnesota Department of Revenue, Analysis of 2025 First Special Session Chapter 12, Sections 17-18 (Sales and Use Tax, Qualified Data Centers), June 20, 2025.
6. Minnesota Statutes 2025, § 216B.72, Qualified Large-Scale Data Center Fee.
7. Minnesota Statutes 2025, § 216B.1622, Service to Very Large Customers.
8. Minnesota Statutes 2025, § 297A.68, subd. 42, Qualified Data Centers.
9. Minnesota Statutes 2025, § 297A.75, Refund of Tax Paid on Certain Purchases.
10. Minnesota Public Utilities Commission, Very Large Electric Customers, 2026.
11. Minnesota Department of Employment and Economic Development, Data Center Sales Tax Exemptions.
12. Session Daily, Minnesota House of Representatives, House and Senate pass $1.24 billion bonding bill, send to governor, May 18, 2026.
13. KTTC, Walz signs $1.2 billion bipartisan bonding bill, June 5, 2026.
14. Minnesota Center for Environmental Advocacy, MCEA's 2026 Legislative Recap, May 2026.
15. MPR News, Minnesota lawmakers push for water permits for data centers and other big industries, April 6, 2026.
16. MPR News, At Minnesota Capitol, pushback from unions, industry halted new regulations on massive data centers, June 12, 2026.
17. Minnesota Reformer, Minnesota lawmakers extend tax breaks for Big Tech data centers, June 11, 2025.

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