Utah State Capitol demonstration against data center construction.
Scott Kwiatkowski takes part in a demonstration at the Utah State Capitol to oppose the construction of the Stratos data center in Box Elder County on May 23, 2026 in Salt Lake City, Utah. Photo by Natalie Behring/Getty Images

KEY POINTS

  • Virginia's new law reflects a growing political backlash against AI infrastructure.
  • The state is attempting to recover revenue without dismantling the incentives that built "Data Center Alley."
  • Statewide taxpayers help subsidize the industry while Loudoun County reaps much of the fiscal benefit.

In a historic first, Virginia lawmakers enacted a new tax on data center electricity consumption.

The move was designed to claw back $600 million from the massive tax breaks given to data centers in the wake of the 2008 financial crisis. Last year, those tax breaks cost Virginia between $1.6 billion and $2.0 billion in unrealized revenues and became a political hot potato as debate heats up across the country in local communities over data center construction. As Bloomberg Tax reported:

"In 2023, just after the release of ChatGPT, 69% of Virginia voters said they wouldn't mind a data center in their backyard, a Washington Post-Schar School poll found. In a poll update this March, public sentiment had nearly flipped: 59% of voters didn't want data centers. Moreover, 67% supported ending the sales tax exemptions."

Nationally an overwhelming 71% of Americans oppose the construction of AI data centers in their communities, according to recent Gallup poll. Reflecting this trend, New York became the first state to impose a one-year moratorium on data center construction while officials review their impact on electricity, water resources and local communities.

While Virginia taxpayers effectively subsidize data centers through tax exemptions, taxpayers America's in richest county reap the benefits. Dubbed "Data Center Alley" for hosting an estimated 70% of global internet traffic, Loudoun County collects $1.3 billion in property tax revenue from some 200 data centers. This revenue stream allowed the county government to significantly lower residential property taxes. If its data centers disappeared, the median homeowner would have to pay an additional $5,800 in property taxes to avoid spending cuts, according to Chamber of Progress.

The complicated details of the new tax are the result of a compromise. Virginia lawmakers faced organized campaigns by AI skeptics such as environmentalists on one side and an alliance consisting of six data center companies, seven labor unions, and four chambers of commerce on the other. Any electricity consumption tax revenue beyond the $600 million threshold goes into a fund set aside to refund data center operators reported The American Prospect, although the state will collect interest on the surplus revenue.