Data centers in Virginia may have to prove their green credentials to continue to qualify for tax breaks in the state.

Under new legislation voted through by the Virginia House of Delegates last week, a sales and use tax exemption for data center operators would be extended from its current 2035 expiration date to 2050, but with additional conditions.

House Bill 897 states that data centers built after the bill takes effect in July 2027 would be banned from using their own fossil fuel energy such as natural gas. Operators of large campuses are increasingly buying up their own gas turbines to supply the power they need, with grid resources in short supply.

Other measures include a requirement to match all grid-sourced fossil fuel electricity with clean energy credits, and to phase out diesel backup generators in favor of green alternatives.

Existing data centers benefiting from the tax break would have until 2034 to comply with the new rules if they want to continue receiving subsidies.

The exemption currently covers Virginia’s sales tax, which is charged at between 5.3 percent - seven percent, depending on which part of the state a business is located in. It covers all data centers that create at least 50 jobs and represent an investment of more than $150 million.

Delegate Rip Sullivan has sponsored the bill. In comments reported by Inside Climate News, he said: “This exemption is enormous, and the data center industry is asking us to continue that investment.

“If the data centers want this tax exemption, they have to make good on their supposed commitment to us. They have to be part of the solution to the challenges that they have created for our grid and for many of our local communities…What will they do in return?”

The tax break was first introduced after 2008 financial crisis, and has helped Virginia, specifically Loudoun and the other counties of Northern Virginia, become the world’s busiest data center market. The state is home to more than 500 data centers, and the tax break was worth a total $1.9 billion in 2025.

The success of Virginia’s data center market has put its infrastructure, particularly around power, under strain. In January, a new rate class was approved for large load electricity users, such as data centers, to ensure the cost of network upgrades needed to accomodate new developments are not passed on to consumers.

Having passed the House, the bill now goes forward to the Virginia Senate Finance and Appropriations committee for further scrutiny.