Virginia Senate Floats Data Center Fee to End Budget Impasse (1)

Data centers would be required to pay a tiered impact fee but would keep a controversial sales tax exemption under a Virginia budget proposal meant to break a stalemate that has split Democratic leaders and pushed the state’s legislative session into overtime.

The Virginia Senate Finance and Appropriations Committee detailed its $76 billion fiscal 2027-28 spending plan on Tuesday. The data center tax exemption, which was worth nearly $2 billion in fiscal 2025, had emerged as the defining issue dividing House and Senate leaders ahead of a June 30 budget deadline.

The tiered impact fee would be imposed on data centers’ diesel generators and tethered to capacity and emission standards, and range from $35 to $45 per kilowatt of electrical output, according to committee staff presentation. It would take effect Jan. 1, 2027, and raise $582 million in fiscal 2027 and $1.2 billion in fiscal 2028, the presentation stated.

The proposal comes on the heels of one unveiled Friday by the Virginia House of Delegates, which maintains the tax exemption but doesn’t include any additional fees on the data center industry. The House version instead called for a state study of data center impacts for policies to consider next year. Gov. Abigail Spanberger (D)—who has argued that ending the exemption would break a promise to the industry—endorsed the House plan.

Virginia is the largest data center market in the world with more than 600 sites, spurring pushback and concerns about their massive power consumption and local impacts.

Sen. L. Louise Lucas, who chairs the Senate Finance committee, said during a committee meeting Tuesday that revenue from the impact fee would help mitigate the industry’s environmental impacts. Spanberger and House leaders “have focused their attention on protecting the data enters, rather than being focused on what our citizens are asking us to do on this issue,” Lucas said.

“I still believe that expiring the data center sales tax and use exemption would be the correct path,” Lucas said. But the Senate proposal “provides an alternative path to where data centers pay their fair share to support services to Virginia and ensure structural balance.”

Spokespeople for House Speaker Don Scott (D) and Spanberger didn’t immediately respond to a request for comment on the data center proposal.

Senate Majority Leader Scott Surovell (D) praised the new fee for generating additional funding for healthcare and education priorities.

The Senate proposal is a “very affordability-focused budget, which will provide Virginians a lot of relief and help, especially those who are struggling from the cuts from the administration across the river,” Surovell said.

But a construction union that has advocated for an extension of the sales tax exemption expressed disappointment at the Senate proposal. Workers packed the hearing room on Tuesday.

“There’s nothing given back that would help me secure jobs in the future,” Don Slaiman, a political coordinator for the International Brotherhood of Electrical Workers, told Bloomberg Tax after the meeting.

The proposed impact fee is a “rose by any other name” that could harm the industry as much as a repeal of the sales tax exemption, Slaiman said. “This is too much of a risk.”

Lucas said Senate budget negotiators would meet with their House counterparts right after the committee’s meeting ended.

The state budget cycle will see a little more revenue after Spanberger and legislative leaders announced a deal Tuesday allowing recreational cannabis sales beginning June 1, 2027. Spanberger had vetoed legislation last month that would start sales six months earlier.

The agreement establishes a 6% state sales tax on marijuana that will increase to 8% after July 1, 2029, with proceeds allocated to education and health programs. The 8% rate is projected to raise more than $400 million annually.

The bill also allows localities to adopt an additional 1% to 3.5% tax.