Senators clash over $1.9 billion data‑center tax exemption as budget negotiations stall

A central theme of floor discussion late in the session was the budget standoff over an estimated $1.9 billion in annual sales-and-use tax exemptions awarded to data centers.

Senator S39 framed the choice on the budget as "people versus data centers," urging colleagues and the House of Delegates to end or phase down the exemption and use the revenue to support schools, roads and services. He argued the current arrangement asks everyday Virginians to shoulder fiscal burdens while exempting large server farms.

Other senators urged a more calibrated approach. Sponsors representing Northern Virginia — where data centers are concentrated — said the exemption had industrial-policy justifications, pointed to the economic role data centers play in sustaining local tax bases in some jurisdictions (notably Loudoun County), and warned of the infrastructure and job impacts of sudden policy changes. The senior senator from Eastern Fairfax cited utility-regulator correspondence indicating recent rate increases are driven largely by transmission and inflationary pressures and that data centers accounted for a modest per-customer increase in recent cases.

Regulatory and fiscal context cited on the floor included the role of transmission upgrades and the statewide utility regulator's analysis of recent rate cases. Several senators urged a statewide deliberative process and scheduled follow-up work rather than a snap policy reversal; others said the scale of foregone revenue requires immediate negotiation to fund pressing priorities.

Next steps: Senators said the matter will be part of ongoing budget negotiations and that technical work with the State Corporation Commission, JLARC and other agencies will be necessary to model long-term fiscal and grid impacts before final action.