What is Virginia's Data Center Electricity Consumption Tax and Who Pays It?

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.

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.

Where Did the Tax Come From?

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.

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."

Who Pays the Tax: the Utility or the Data Center?

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:

• Utility-served facilities. Dominion Energy, electric cooperatives, and competitive service providers collect the tax monthly and remit it to the SCC. Greenberg Traurig notes it appears as a line item on the power bill, like Virginia's existing electric utility consumption tax under Va. Code Title 58.1, Chapter 29.
• Self-supplied facilities. Operators generating their own power, including behind-the-meter gas, solar, or wind, calculate and remit the tax directly to the SCC on a monthly return, and report usage quarterly to the Department of Environmental Quality (DEQ), which verifies the figures with the SCC. There is no renewable-energy exception.
• Multi-tenant economics. Williams Mullen flags that landlords holding the utility account may pass the tax through to tenants under existing lease and service agreements. Whether a contract's tax, utility, or operating-expense clauses allocate this new levy is the first question every colocation tenant should ask.

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.

How Is the Tax Calculated? A Worked Example

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.

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:

• Annual consumption: 100,000 kW × 8,760 hours × 0.80 = 700,800,000 kWh
• Annual tax: 700,800,000 kWh × $0.011 = $7,708,800 (about $642,400 per month)

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.

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.

How Does the Tax Interact with the Preserved Sales and Use Tax Exemption?

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.

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.

Will Other States Copy Virginia's Tax?

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:

• Pennsylvania is conditioning, not taxing. Governor Josh Shapiro (D) rolled out the Governor's Responsible Infrastructure Development (GRID) Standards, which would convert the state's sales and use tax exemption for data center equipment, projected to cost more than $517 million annually by FY 2030-31, into a certification tied to ratepayer-protection, clean-energy, workforce, and community commitments. The House passed House Bill 2650 to codify the standards 134-68 on June 24, 2026; the bill has sat in the Senate Finance Committee since June 25.
• Ohio has frozen its exemption through the end of the DeWine administration. Governor Mike DeWine paused new data center sales tax exemptions on May 27, 2026, after the exemption's cost hit $1.57 billion in 2025, eleven times the forecast. On August 6 he said the freeze "will continue until I leave office" in January 2027, leaving repeal, a 50 percent cap, or renewal to the next governor and the 2027 legislature.
• Illinois, Arizona, and Maine have pulled back. Governor JB Pritzker paused new Data Center Investment Program agreements effective July 1, 2026, and asked lawmakers to add restrictions in the November-December veto session; Arizona enacted a moratorium on its data center sales tax exemption from July 1, 2026 through June 30, 2029; Maine excluded data centers from its equipment tax exemption programs.
• Oregon and Texas are moving on the rate side. Oregon regulators approved a large-load tariff framework, surcharge-style pricing for data-center-scale customers aimed at insulating residential ratepayers, and Governor Greg Abbott has listed repeal of Texas's sales tax exemption and cost-of-service rules for data centers among his 2027 legislative priorities.

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."

FAQ

Does the tax apply to on-site or renewable generation?

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.

What happens if statewide collections exceed $600 million?

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.

Does the new tax reduce or replace the sales and use tax exemption?

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.

When does the tax expire?

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.

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.

References

1. Virginia General Assembly, Item 3-5.24 #1c, Data Center Electricity Consumption Tax, HB 30 Conference Report, 2026 Special Session I, Virginia Budget Portal.
2. Virginia General Assembly, Item 1 #7c, Joint Subcommittee on Tax Policy Study on Data Centers, HB 30 Conference Report, 2026 Special Session I, Virginia Budget Portal.
3. LegiScan, Virginia HB 30 (2026 Special Session I), bill history.
4. Bradley J. Nowak, Virginia Budget Creates New Electricity Consumption Tax for Data Centers, Williams Mullen, July 1, 2026.
5. Marvin A. Kirsner, Eric Waeckerlin, and Jamie Flesch, Virginia Legislature Approves Tax on Data Center Electricity Consumption, Greenberg Traurig GT Alert, June 26, 2026.
6. Kyle H. Wingfield, Virginia Preserves Data Center Tax Incentive, Holland & Knight, August 20, 2026.
7. Nathaniel Cline et al., Virginia legislators advance $205 billion budget including new tax on data centers, Virginia Mercury, June 22, 2026.
8. Virginia finalizes $200B+ 2026-28 budget, Virginia Business, June 30, 2026.
9. Jason Boleman, Virginia lawmakers debate data center taxes, utility costs, Virginia Business / Virginia Lawyers Weekly, August 30, 2026.
10. Kaela Roeder, Virginia enacts $600M tax on data center energy use, Technical.ly, July 2, 2026.
11. Virginia Economic Development Partnership, Data Center Retail Sales & Use Tax Exemption.
12. Code of Virginia, § 58.1-609.3, subdivisions 18 and 19.
13. Virginia Tax, Retail Sales and Use Tax rate schedule.
14. JLARC: Data centers received $2.7B in state tax cuts, Virginia Business, November 25, 2025.
15. Pennsylvania Department of Community and Economic Development, Governor's Responsible Infrastructure Development (GRID) Standards; Commonwealth of Pennsylvania, PA House Passes Legislation to Codify Gov. Shapiro's GRID Standards, June 24, 2026; LegiScan, Pennsylvania HB 2650.
16. Office of Ohio Governor Mike DeWine, Governor DeWine Announces Pause of Data Center Tax Exemption, May 27, 2026; Statehouse News Bureau, DeWine: Ohio data center tax break is for next governor to decide on, August 6, 2026; Signal Ohio, Ohio data center tax break cost $1.4 billion more than expected in 2025, May 21, 2026.
17. Office of Illinois Governor JB Pritzker, Gov. Pritzker Pauses New Data Center Tax Incentives, June 5, 2026.
18. MultiState, State Data Center Policy Shifts as Governors Impose New Restrictions, June 22, 2026.

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