The US state of Virginia missed more than $1.6 billion in tax revenue in the 2025 fiscal year (FY) due to data center tax exemptions.

This figure, which was revealed in Virginia’s 2025 Annual Comprehensive Financial Report, is an increase of 118 percent on the previous fiscal year.

Data centers located in the state can seek Virginia's Retail Sales and Use Tax Data Center Exemptions, provided they offer at least $150 million of capital investment and the creation of at least 50 new jobs.

This requirement is reduced to $70 million of investment and 10 new jobs if the data center is located in a “distressed locality” – an area defined by significant economic hardship, poverty rates, or unemployment.

For comparison, the next highest tax abatement listed in the report is the state’s Motion Picture Production Tax Credit, which resulted in a loss of just $3.5 million in income tax.

Virginia’s exemption requirements are an attractive proposition for data center operators in the AI era, as the minimum requirements for exemption are relatively low compared to the overall spend on modern data centers.

Virginia also operates other expensive tax exemption programs, such as the $750 million incentive payments scheduled to be paid to Amazon for basing its East Coast headquarters, “HQ2,” in Virginia. Even at such a scale, these incentives pale in comparison to the data center exemption sum.

The requirements for these sorts of incentives are also more robust, with Amazon agreeing to create at least 37,850 jobs with average salaries of at least $150,000 and make a capital investment of at least $2 billion.

Virginia’s data center exemptions are scheduled to sunset in 2035.

In November, Virginia’s Joint Legislative Audit & Review Commission (JLARC) released a report detailing economic development incentives in Virginia through 2025.

Looking at the period between FY 2015 and FY 2024, JLARC found that data centers were the largest beneficiary of incentive spending by a considerable amount, reflecting the sizable capital investment in Virginia by the industry.

The Retail Sales and Use Tax Data Center Exemptions accounted for more than half (53 percent) of all incentive spending over the decade, a massive $2.7 billion.

In FY 2024, the data center exemption was the largest incentive, costing $1.02 billion (72 percent of spending).

JLARC also identified that Virginia has awarded more than $2 billion in grant programs to nearly 5,000 projects during the period. Amazon’s headquarters made up a significant portion of this sum with the $750 million HQ2 grant, though this grant, among others, has yet to be paid out in full.

Good Jobs First, a national policy resource promoting corporate and government accountability in economic development, said in a report earlier this year that US states should cancel data center tax exemptions immediately, or otherwise “amend enabling legislation to cap how much in taxes any facility and any company can avoid each year, and how much revenue the program can abate each year.”

The report, which suggests that data centers are endangering state budgets, recommends a pause on data center tax exemption programs in order to study their impact on state and local budgets.