Gov. Josh Stein is asking a state energy policy task force to recommend overhauling or repealing a data center sales tax exemption that state officials say could cost the state hundreds of millions of dollars in coming years.
Under North Carolina state law, data centers that invest at least $75 million within five years are eligible for exemptions from sales and use tax. That means they don't pay taxes on things like construction materials and servers, but also on the electricity they use.
"When this tax break was enacted in (2010) and then widened in 2015, we lived in an entirely different world. At that time, no one could have predicted the explosive growth of data centers and how much energy they consumed," Stein said during Wednesday's meeting of the N.C. Energy Policy Task Force that he established last year.
He continued, "And because data centers at that point were a brand new industry, they benefited from financial incentives to induce capital to invest. Those days are long gone."
While more than three dozen states offer data centers tax exemptions, repealing them has become a bipartisan target of state lawmakers across the country as data centers become increasingly controversial. In Georgia, the Republican-controlled State Senate voted last month to repeal that state's exemption; and Virginia's Democratic-controlled Senate included a sunset of its sales tax exemption in its budget proposal.
A key piece of data that hasn't been available to North Carolina policymakers is just how much these exemptions have been costing state government — and how much they could cost the state's government if planned data centers are constructed.
When the incentives were created in 2010 and then overhauled in 2015, the state did not require recipients to track what they would have otherwise paid in taxes. Stein tasked the N.C. Department of Commerce with coming up with an estimate of that lost revenue.
There are 37 data centers that have received the incentive in North Carolina since lawmakers re-crafted the sales tax exemption in 2015.
Notably, the Department of Commerce found that North Carolina's tax exemption is one of only seven in the country that does not expire at some point.
Tax revenue estimates
In information first reported Wednesday, Commerce used publicly available date to estimate that existing data centers aren't paying between $45 and $57 million in sales taxes annually. That includes between $25 and $37 million for equipment and about $20 million for electricity.
But Commerce officials say that number could leap in the coming years if 6.3 gigawatts of data centers described as being planned in North Carolina are constructed.
If all of those data centers come online, North Carolina would not receive between $1.5 and $2.3 billion in sales taxes during the construction process.
Then, once those data centers are operating, North Carolina would not receive sales and use taxes of about $450 million.
"Given the trillions of dollars of capital that is flowing freely into data center construction, they simply do not need economic incentives to occur. The market is already delivering the incentives," Stein said.
The Commerce analysis did not look at any potential benefits data centers offer. A 2023 report from PWC prepared for the Data Center Coalition found that the industry in 2023 supported 87,380 jobs in North Carolina, contributed $12.2 billion to the state's GDP and resulted in $939 million in state and local taxes.
Data center industry representatives say the sales tax exemptions encourage operators to replace servers more frequently than they otherwise might, bolstering local economies by adding construction jobs and providing as much computing power as possible.
Rob Corradi, an Amazon government affairs official, questioned why the State Energy Policy Task Force was the right place for the sales and use tax exemption conversation to begin.
Instead, he said, it should start in the General Assembly. Beyond that, Corradi added, most of the efforts to repeal sales and use tax exemptions in other states have failed, either not passing entirely or passing in one chamber and not the other.
Corradi also urged policymakers to consider what would happen if companies had made commitments to a state based on an existing economic landscape only to have that shift. Amazon, for instance, has plans to spend up to $10 billion building a data center in Richmond County.
"We should think about what it looks like when a state makes assurances to an industry that part of the reason that they come to a state is because certain exemptions are in place. And then, once that industry makes those commitments and starts hiring North Carolina residents and creating jobs that are both permanent and long-term temporary jobs here in the state what it looks like for the state's business, frankly, reputation" if the landscape shifts, Corradi said.
What Stein is asking for
Stein wants the Energy Policy Task Force to consider either repealing the exemptions entirely, either immediately or by setting a sunset date, or overhauling them by tying sales tax exemption eligibility to conditions such as use of carbon-free energy to power the facilities or mandatory reporting of the facilities' water and energy usage.
Right now, the only conditions are that the facilities invest $75 million and that they offer health insurance to their employees.
The data center sales tax incentive is playing out against the backdrop of an even larger conversation about state individual income tax and how that could impact the state's revenue in coming years.
State lawmakers are grappling with the possibility that previously-agreed-upon tax cuts tied to the state's revenue could result in deficits in coming years. That's according to a consensus revenue forecast released last month by the Office of State Budget and Management and the legislature's nonpartisan Fiscal Research Division which found that the state will likely hit individual income tax reduction triggers in each of the next two years, resulting in the state's revenue slumping.
The N.C. House supports slowing the planned individual income tax cuts to, they say, stave off the possibility of a deficit. The N.C. Senate, meanwhile, says the tax cuts are already agreed upon and that any changes to the planned reductions are a non-starter.
That disagreement is a key factor in why the General Assembly was unable to reach agreement on a new state budget during 2025's legislative long session.
Stein pointed to the predicted deficit in his remarks Wednesday.
"We should spend taxpayer dollars and forego revenue only when there is a clear direct value to the people of this state. And do we really want to subsidize data center's consumption of energy and electricity when they make everyone else's power bills go up? It doesn't make much sense to me," Stein said.
Peter Ledford, an energy attorney who served as former Gov. Roy Cooper's clean energy director, said any discussion of withdrawing the sales and use tax exemptions also needs to weigh the benefits of the existing tax structure.
"We can't have (this conversation) in a vacuum. We need to look at both sides of the ledger about what costs would be, but also what benefits are provided ," said Ledford, who represents the industry group Carolinas Industrial Group for Fair Utility Rates.
Any changes to the state tax incentive structure would need to be passed by the N.C. General Assembly.
Rep. Kyle Hall, R-Stokes, said the data center sales tax exemption could merit a discussion at the General Assembly but likely isn't in the purview of the energy task force. Hall co-chairs the task force.
And even at the General Assembly, Hall said, "You take a risk of the camel's nose getting under the tent when you start talking about some of these tax exemptions because the same could be said to some clean energy sector tax exemptions like solar farms."
If the data center tax exemption is rolled back, Hall said, it could lead to a discussion like the one around repealing local property tax abatements for solar facilities re-emerging. A House bill that would have repealed that abatement that was introduced in the long session died in committee.
Sen. Julie Mayfield, D-Buncombe, said she believes the General Assembly should look at overhauling the tax exemptions, pointing to the conversation around solar farms.
"Call it fairness, call it consistency, call it whatever you want. I do think we should put this on the table for consideration. Again, if the original purpose was to incentivize data centers to come here, you could argue that objective has been met," Mayfield said.
