Democratic lawmakers in Virginia are at an impasse over data center development, a standoff that could trigger a partial government shutdown if lawmakers fail to reach a budget agreement by the end of June.
Virginia currently leads the nation in data center development with 398 centers built and more than 250 additional developments planned, according to Pew Research Center. The industry has flourished in large part because qualifying data centers are exempt from Virginia’s retail sales and use tax, allowing companies to purchase servers and other equipment tax-free.
“Virginia will have a budget by June 30. I repeat, Virginia will have a budget by June 30,” Democratic state Sen. L. Louise Lucas said Tuesday before a Senate Finance and Appropriations Committee hearing. Lucas has been one of the leading voices calling for an end to the tax breaks.
Senate Democrats are pushing to phase out the state’s sales and use tax exemption for data center equipment beginning Jan. 1, 2027. Supporters argue the move could reclaim billions in lost revenue and redirect the funds toward schools, transportation, and infrastructure.
The dispute came to a head in late April when Virginia lawmakers met in a special session to finalize the state budget, only for negotiations to collapse over the future of those tax incentives.
The House rejected the proposal, and Gov. Abigail Spanberger (D-VA) has also opposed eliminating the incentives, arguing they remain critical to Virginia’s economic competitiveness.
Spanberger has signaled that while she believes data centers should contribute more to the state, Virginia must also honor the commitments it has made to businesses that invested under the existing tax structure.
Under current law, qualifying data centers, generally those investing at least $150 million and creating at least 50 high-paying jobs, can buy servers, routers, and cooling systems without paying sales tax. The exemption first took effect in 2010 and is set to expire in 2035.
“Data centers will employ very few permanent jobs for a sizable tax giveaway,” Lucas said Tuesday. “This is imperative to encourage responsible growth in the commonwealth to protect our electric grid and natural resources, while also ensuring hardworking Virginians are not asked to pick up higher utility costs to fund a higher share of our existing core services.”
“I think the governor’s still sort of learning how Richmond works,” Democratic state Senate Majority Leader Scott Surovell said. “We don’t work like Washington, D.C. We work very quickly, we get a lot done, we get it done very quickly.”
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“We don’t have time to sit around and analyze and talk and talk and talk like they did in Congress, and I hope that she’ll adjust as we go forward,” he added.
Despite the disagreements, Surovell said he remains confident Democrats will reach a deal before the June 30 shutdown deadline.
