A torrent of states are repealing data center tax exemptions — but it could increase costs by upwards of 7%

Multiple US states are repealing tax exemptions for data centers, which could increase construction costs by up to 7%. Ohio was the first state to eliminate these exemptions, resulting in an estimated $1.6 billion in lost tax revenue, exceeding initial projections of $136 million. Since then, Illinois, Arizona, and several other states have followed suit, either pausing or abolishing their exemptions.

This trend has prompted nine additional states to consider halting their exemptions, while 28 others have introduced legislation to limit their impact. Data center costs have been rising due to increased electricity costs and a lack of renewable energy sources, as President Trump has rolled back regulations on fossil-fuel power stations and scrapped funding for renewable energy.

The expanded AI sector is facing mounting debt, with hidden obligations totaling nearly $1.65 trillion. Despite these challenges, some data centers already underway may benefit from indefinite exemptions, as do businesses still evaluating the return on investment (ROI) for AI technologies.