Virginia house ties data center tax breaks to clean energy requirements

The Virginia House of Delegates has approved legislation that maintains billions of dollars in tax exemptions for data centers while requiring them to commit to clean energy transitions. The bill, which passed Tuesday along largely partisan lines in the Democratic-controlled chamber, represents a significant shift toward conditioning corporate tax benefits on environmental performance.

Under the new legislation, both existing and newly constructed data centers can continue receiving exemptions from Virginia’s retail sales and use taxes, but only if they demonstrate concrete steps to reduce fossil fuel dependence and increase renewable energy usage. The measure also requires facilities to implement energy efficiency measures to reduce overall consumption.

The legislation reflects growing concerns about the environmental impact of data centers, which consume enormous amounts of electricity to power servers and cooling systems. As cloud computing, streaming services, and digital infrastructure continue expanding, these facilities have become major energy consumers and potential sources of carbon emissions.

Virginia has emerged as a major hub for data centers, particularly in Northern Virginia’s “Data Center Alley,” making the state’s tax policies influential for the industry nationwide. By linking tax incentives to environmental standards, lawmakers are attempting to balance economic development with climate goals. The bill now moves to the Republican-controlled Senate, where its fate remains uncertain given the partisan divide on the legislation.