North Carolina Governor Josh Stein and anti-data center advocates statewide are paying increased attention to a decades-old sales tax exemption intended to help boost the increasingly controversial industry.
Under North Carolina law, data centers that cost at least $75 million do not need to pay sales and use taxes on their construction costs, equipment or electricity.
While nobody knows exactly how much tax revenue the data centers are exempt from, recent estimates from the N.C. Department of Commerce place it between $45 and $57 million annually. But that amount could balloon, Commerce analysts say, if all of the data centers planned for North Carolina are built, to something in the neighborhood of $450 million annually - in addition to between $1.5 and $2.3 billion in exempt taxes during construction.
"I am calling on the legislature to reexamine those incentives to make sure that they are structured in a way that makes sense for the people of North Carolina," Stein said Tuesday.
The push to overhaul the data center tax exemption has at least some attention among legislative leadership at the General Assembly, too.
Speaking with reporters Tuesday, Sen. leader Phil Berger, R-Rockingham, said he thinks the data center exemptions merit some legislative scrutiny.
"There was a time when I think that exemption was put in place that we were trying to incent the location of data centers. I still think they're a good thing, but I'm not sure we need to provide that kind of incentive in order for them to be located here," Berger said.
Industry representatives say the exemption is a key part of why North Carolina has experienced so much interest in recent years, with large companies like Amazon, Apple, Meta and Microsoft all building or planning to build data centers here.
"It is a key factor in making North Carolina a competitive marketplace for data centers and really for North Carolina, I think, emerging now as a strong and growing market," said Dan Diorio, the vice president of state policy for the Data Center Coalition, which advocates for data center developer interests.
Other key factors are access to abundant electricity, access to land and the available workforce, Diorio added.
Once a facility is built, Diorio said, sales tax exemptions encourage data center developers to more quickly swap out the servers and other equipment in their facilities, meaning they can use more modern, energy efficient materials. Servers, for instance, are replaced every three to five years, and new chips are about 25% more energy efficient.
"It's an ongoing cost. So by having a sales tax exemption program on the books, you're fostering the continuous reinvestment into the facility itself," Diorio said, adding that the process of swapping out equipment supports technician jobs.
Notably, an exemption from sales and use tax in North Carolina means that not only is the state government missing out on revenue, but so are local governments. The state receives 4.75% of the tax, while the amount local governments receives varies by county but is typically around an additional 2.25%.
Data centers do continue to pay local property taxes on their facilities and equipment in North Carolina, unless they have otherwise received an abatement as part of a local incentive package.
In this 6-part series, BPR, the NC Newsroom, WFAE, and WUNC explore North Carolina's accelerating data-center boom and its real impact on local communities.
Through on-the-ground reporting, document reviews, and conversations with residents, the series examines how Big Tech is reshaping small towns, consuming vast amounts of power, and striking deals that aren't always clear. It explores who benefits, who bears the cost, and why North Carolina has become an appealing target for server farms despite modest public scrutiny. By following the money, the energy demands, and the promises made to communities, the project aims to reveal what's at stake as the cloud moves into the state’s backroads.
Data center exemption history
North Carolina passed its first data center tax exemption as part of the 2006 budget bill, exempting data centers that invest at least $250 million from paying sales tax on their electricity or "business property" at their facilities.
At the time, as both Berger and Stein have said, North Carolina was trying to entice large companies to locate data centers in the state.
The exemption was tweaked in 2010, in part to make it more enticing for data centers to locate in counties with less economic development success.
Then in 2015, legislators overhauled the exemption as part of a sweeping economic development bill. Under those changes, data center developers are eligible for the tax if the facility has multiple tenants and they need to invest $75 million to be eligible for the exemption. Companies would also need to offer health insurance to their employees
The 2015 language also made clear that the exemption applies not only to electricity, but also to things like HVAC equipment and computer hardware.
Former Rep. Jason Saine, R-Lincoln, championed the data center proposal at the time. It was necessary, he wrote, to compete with states like neighboring Virginia that were "pulling ahead" in attracting data centers.
"This wasn’t a blank check; it was targeted infrastructure support to bring construction jobs, permanent operations roles, and long-term property tax revenue to communities, especially rural ones facing shrinking tax bases," Saine wrote in response to questions.
The law has largely worked as intended, Saine wrote, supporting construction jobs and boosting plumbing and HVAC technician jobs in the places where they are located. Beyond that, Saine wrote, if North Carolina steps away from data center development, there are other states eager to step up.
Now a lobbyist, Saine said that while he does not currently represent any data center interests at the General Assembly, he still supports the industry. Saine also acknowledged that the scale of data centers has changed dramatically with the advent of artificial intelligence.
"Other states continue to offer strong incentives. Our focus should remain on responsible growth that delivers net value which equals more jobs, stronger rural tax bases, and U.S. leadership in AI infrastructure. This can be done while adapting standards to today’s larger-scale projects," Saine wrote.
'Profound lack of transparency'
An element of North Carolina's data center exemption that critics find particularly troubling is that recipients aren't required to regularly report the amount of taxes they would have otherwise paid. It is one of 12 states that does not report the impact to tax revenue from its exemptions, Commerce officials found.
That means that nobody actually knows how much revenue the facilities could be generating for North Carolina. And it makes the state's exemption an outlier compared to other tax packages for data centers, said Kasia Tarczynska, a senior research analyst at watchdog group Good Jobs First.
"The public has no information whatsoever about the cost of these massive cost of these tax breaks. The state does not report how much the sales and use tax exemption costs the public," Tarczynska said.
Tarczynska called the lack of information about the incentive "a profound lack of transparency."
Tarczynska also disagrees with the industry's contention that exemptions are key to data centers' decision to locate in one state or another. She pointed to a Georgia audit that found 70% of that state's data centers would have located there even without the state's tax exemptions, while 30% said they were key to their decision.
"Really what data centers are looking for right now, they're looking for places with cheap power, cheap water, a lot of land, cheap land and lack of regulation so that they can build these facilities as quick as possible. So subsidies are not really a (factor)," Tarczynska said.
To understand the exemptions in North Carolina, Stein directed his Department of Commerce to use publicly available data to try to estimate the potential revenue figure, landing on the roughly $50 million a year in exempt revenue.
That covers 37 data center projects that have claimed the exemption since it was last tweaked in 2015. The exempt taxes are already about a dozen times higher than the $4 million annual projection legislative staff projected in 2015 and likely to soar higher.
Commerce analysts also found that some states have hinged data centers' eligibility for the exemptions on sustainability requirements, like Kansas, or on a mandate that they derive much of their power from renewable sources, like Michigan.
Additionally, North Carolina is one of seven states with an exemption that lasts into perpetuity. The other 25 identified by Commerce phase out over time or have an expiration date.
Stein has asked the bipartisan State Energy Task Force he formed last year to study the issue and recommend either a full repeal or modifications hinging eligibility on reporting electric and power usage or mandating the use of carbon-free energy to power the facilities.
"State revenue has become increasingly precious. We should spend taxpayer dollars and forego revenue only when there is a clear direct value to the people of this state," Stein told the task force on April 8, adding that he does not believe providing some of the world's largest companies with tax breaks provides such value.
Part of a national push
North Carolina isn't the only state questioning whether it should continue providing data centers with tax exemptions. There are 37 states with some kind of exemption in place. Lawmakers in Georgia, Ohio and Virginia have all debated repealing or phasing out their tax exemptions this year amid widespread concern about the industry.
But, the Data Center Coalition's Diorio notes, none of those efforts have been successful.
At least one lawmaker plans to introduce a bill during the short session that started this week to roll back the data center tax exemption.
Rep. Pricey Harrison, D-Guilford, has long harbored concerns about the tax breaks for data centers, arguing that the state shouldn't be using taxpayer dollars to subsidize an industry that comes with a spate of concerns.
"There doesn't need to be any economic incentive to invite data centers to locate in our state. They are anxious to locate wherever they can in the country, so I don't think we need to use what is probably going to be about a billion dollars in taxpayer money to convince these data centers to locate in our state," Harrison said.
Harrison plans to introduce a bill repealing North Carolina's exemption and is hopeful that it will have a Republican cosponsor.
