Data Center Backlash Forces States to Rethink Generous Tax Break

One by one, residents sporting red “Stop Project Sail” shirts took the podium at the Coweta County, Ga. commissioners’ meeting.

They fretted about noise. Water supplies. Power bills. Destruction of a rural landscape. They had mobilized an online organization with nearly 5,000 Facebook members and planted “No Data Center” yard signs against Project Sail, a proposed $17 billion data center campus that would consume more than 800 acres about an hour southwest of Atlanta.

The commissioners declined to respond to comments during that March 3 meeting, saying they must remain neutral before an upcoming vote that could allow the project to proceed. But the complaints had already caught the attention of a powerful Republican state lawmaker who previously supported a tax break for the data center industry—and who happens to live down the road from the site.

The community opposition “probably flipped me 100% on the issue,” Sen. Matt Brass said in an interview this month at the Georgia State Capitol. Brass has less than a week left in the GOP-led legislature’s current session to convince other lawmakers to get on board with ending the tax break. He is also trying to sway the Republican governor, who overrode an earlier repeal effort.

As sprawling data centers have proliferated to power the artificial intelligence boom, they are increasingly bumping up against homeowners wary of their impact.

Those grievances have inspired state lawmakers from both parties—facing tighter budgets and higher cost of living for their constituents—to target the increasingly lucrative  sales tax exemptions. More than a  dozen states  are curtailing or rewriting laws that let data centers avoid sales taxes on materials, servers, and other equipment.

Michigan created its data center tax exemption in 2024 and is already considering bipartisan legislation to repeal it. Ohio has one of the biggest data center hubs in the country, yet the head of its legislature’s tax-writing committee is spearheading an effort to eliminate the state’s 13-year-old exemption. Lawmakers in Democrat-led Washington, long a proud tech hub, sent a bill to the governor this month that would roll back its exemption.

In Georgia, Brass was among lawmakers who voted in 2018 to create a relatively noncontroversial state sales tax exemption for data centers’ equipment. This year, he led the effort to end that program for projects going forward. That repeal bill (SB 410) passed the Senate this month and is under consideration by the House.

“If there’s going to be a divide, why are we going to incentivize them?” Brass said. “You’re still more than welcome to come here. You’re just gonna pay, just like everyone else.”

Switch, which lobbied for the sales tax exemption created in 2018, built a data center campus near Atlanta.

Photographer: Paul Detrick/Bloomberg Law

Shifting Tax Breaks

In Georgia, data center sales tax exemptions are projected to hit an estimated $625 million in foregone revenue in the next fiscal year—up from just $10 million in 2020, according to a state audit. The audit, conducted by the University of Georgia, also found about 70% of data center construction activity in the state would have occurred even without the tax exemption.

Opponents have seized on such details as data center scrutiny ramps up nationally. One data center can require as much electricity as a mid-sized city and guzzle millions of gallons of water a year. Lights, noise and traffic from multiyear construction projects draw grumbles, particularly in rural areas.

Brass and other lawmakers proposed using the money recouped by ending the exemptions to cut income taxes for state residents.

The income tax measure passed the Senate last month. But House lawmakers want to use the new tax revenue from data centers to pay for a property tax cap.

Lawmakers will have to strike a deal before they are set to gavel out the session April 2—and win over Gov. Brian Kemp (R).

Kemp vetoed an effort to repeal the tax exemptions in 2024, writing at the time that the state would be “undermining the investments made by high-technology data center operators, customers, and other stakeholders” and “inhibiting important infrastructure and job development.”

Kemp’s office declined to comment on pending legislation.

Dollar Signs and Jobs

The data center industry, suddenly playing defense in state capitals, has been trying to emphasize their benefits, particularly in rural areas. Dan Diorio of the Data Center Coalition told Georgia lawmakers in January the facilities “support thousands of jobs across the state” and “provide a massive stable property tax base.”

Local governments can see property tax revenue, payments in lieu of taxes, and sales tax revenue from the surge in construction workers in the community, said Lynn McKee, director of the commercial real estate master’s program at Georgia State University.

And while rural areas are usually unlikely candidates for new housing developments, office buildings or shopping centers, data centers can generate property tax revenue equaling about one-third of a county’s budget, he said.

“A lot of people are missing the benefits that a data center brings, particularly in comparison to what else could go there,” McKee said.

Data centers now support 25 million man-hours in Georgia—roughly half the work output of about 22,000 construction workers, said Kenny Mullins, business manager of the Atlanta North Georgia Building Trades Council, and a defender of the industry’s tax incentive.

Kenny Mullins says ending the tax break could cost jobs.

Photographer: Daniel Moore/Bloomberg Law

Mullins, a longtime electrical worker, said the state would be breaking a promise to the industry and workers if the exemption goes away next year, instead of the current sunset date of 2032.

Google, Amazon, Meta, Microsoft, and QTS have all built a substantial Georgia footprint. Switch—a developer that lobbied so hard for the 2018 tax exemption that the legislation was dubbed the “Switch bill”—built a sprawling campus 20 miles west of Atlanta right after the bill passed.

“We’re gonna have a lot of people looking for new work and trying to find jobs,” Mullins said.

A Divisive Project

Brass, who grew up in Newnan, the Coweta County seat, believes Georgia politics has shifted against the tax exemption as hyperscale projects have caused controversy across the state.

Angry residents have packed normally mundane hearings on zoning and permits from Jones County, in central Georgia, to Columbia County, in the northeast. In Monroe County, near Macon, commissioners voted unanimously last year to reject a rezoning proposal for a data center.

Prologis, the developer of Project Sail in Coweta County, chose the location “primarily because of its proximity to existing power infrastructure,” Mattie Sorrentino, a company spokesperson, said in a statement. “Energy can be delivered efficiently without the need for new transmission lines through other parts of Coweta County, minimizing disruption to the broader community.”

The company claims the project would generate $100 million annually in tax revenue to Coweta County and employ 270 full-time workers at a total annual payroll of $23 million. The project cannot raise existing residential power rates under a state utility rule, and it won’t raise water rates because the county water authority can meet demand, the company said.

Ron Bockrath, a retired engineer, has told Coweta County commissioners he worries about the noise and energy impact of the data center project slated to be built next to his home.

Photographer: Daniel Moore/Bloomberg Law

The county commissioners are expected to decide in the coming weeks whether to change zoning from rural conservation land to industrial, paving the way for the data center proposal to proceed.

By that time, state lawmakers should have also resolved if the project, and others like it, will generate or avoid millions in taxes going forward.

Brass, the Senate Rules Committee chairman, says his bill is a commonsense response to local opposition and that data centers would still find plenty of other reasons to build in Georgia. He is also negotiating with Kemp’s office to avoid another veto.

“We’re just seeing the tip of the iceberg on AI,” Brass said. “I think the governor will see that, and I think he knows the game has changed.”