Client Alert: UPDATE: Virginia Enacts Energy Consumption Tax on Data Centers and Signs Broader Energy Affordability Package
Date: July 30, 2026
Executive Summary
This update supplements our April 29, 2026, client alert on Virginia’s data center tax reform. On June 22, 2026, the Virginia General Assembly passed budget legislation (HB 30) that resolved the sales tax exemption dispute that had deadlocked the two chambers since March. The compromise preserves the existing sales tax exemption but imposes a first-of-its-kind energy consumption tax of $0.011 per kilowatt-hour on data center electricity usage, expected to generate up to $600 million annually. Governor Spanberger signed the budget into law on June 30, 2026, ahead of the June 30 constitutional deadline, and the new tax took effect July 1, 2026.
While the retention of the sales tax exemption provides near-term certainty for developers who relied on it, the new energy consumption tax introduces a material operating cost that must be incorporated into financial models. Critically, the tax expires at the end of the two-year budget cycle, and the legislation creates a joint legislative subcommittee to study the broader data center tax issue, signaling that this compromise is a waystation, not a final resolution. In the days following the budget signing, Governor Spanberger also signed a broader package of energy affordability legislation, including new restrictions on data center backup generator emissions, new tools for localities to assess data center impacts, ratepayer protections and legislation to rejoin the Regional Greenhouse Gas Initiative (RGGI).
1. RESOLUTION OF THE TAX EXEMPTION STALEMATE
As detailed in our prior alert, the April 23 special session ended without agreement on the sales tax exemption, with the Senate’s proposal to phase out the exemption beginning January 1, 2027 and the House’s insistence on honoring existing commitments to the industry remaining irreconcilable. That deadlock has now been broken.
Lawmakers reached a deal over the weekend and passed HB 30 on, June 22. The legislation threads the needle between the two chambers’ positions: the sales tax exemption survives intact, but a new revenue mechanism, an energy consumption tax, addresses Senate demands for increased industry contributions. Governor Spanberger signed HB 30 into law on June 29, 2026, calling it a compromise and stating that it will “ensure this industry pays its fair share and does not drive up costs for Virginia families.”
Senate Finance and Appropriations Chair Louise Lucas, who had led the push for outright repeal, signaled on the Senate floor that the compromise is not the end of the debate. “We’ve heard the people, and we are responding,” Lucas said, vowing to continue advocating for a full repeal of the exemption.
Lawmakers reached a deal over the weekend and passed HB 30 on, June 22. The legislation threads the needle between the two chambers’ positions: the sales tax exemption survives intact, but a new revenue mechanism, an energy consumption tax, addresses Senate demands for increased industry contributions. Governor Spanberger signed HB 30 into law on June 29, 2026, calling it a compromise and stating that it will “ensure this industry pays its fair share and does not drive up costs for Virginia families.”
Senate Finance and Appropriations Chair Louise Lucas, who had led the push for outright repeal, signaled on the Senate floor that the compromise is not the end of the debate. “We’ve heard the people, and we are responding,” Lucas said, vowing to continue advocating for a full repeal of the exemption.
2. KEY DETAILS OF THE COMPROMISE
The budget legislation contains three principal components relevant to data center developers:
- Sales Tax Exemption Preserved. The existing sales and use tax exemption for data center equipment, which had ballooned to an estimated $1.9 billion per year, remains in place. The Senate’s proposal to phase out the exemption beginning January 1, 2027, was not adopted.
- New Energy Consumption Tax. In lieu of repealing the sales tax exemption, the budget imposes a new tax of $0.011 per kilowatt-hour of electricity consumed at each data center per month. This is the first tax of its kind imposed on data centers in any U.S. state. The tax is projected to generate up to $600 million per year in new revenue, substantially less than the $1.6 billion the Senate had sought through repeal of the exemption, but well above the Data Center Coalition’s $1.1 billion biennial proposal.
- Sunset and Study Provisions. The energy consumption tax expires at the end of the two-year budget cycle (June 30, 2028), absent legislative extension. The legislation also creates a joint legislative subcommittee to study the data center tax issue comprehensively, setting the stage for further legislative action in 2028 or sooner. Notably, a House proposal in the weeks before passage would have established a broader study commission that included labor representatives, but the final legislation opted for the narrower joint legislative subcommittee structure. A related work group is expected to present its findings to the General Assembly in November 2026 to inform bills for the January 2027 session.
3. GOVERNOR SIGNS BROADER ENERGY AFFORDABILITY PACKAGE
On July 1, 2026, Governor Spanberger signed a package of bipartisan bills as part of her “Affordable Virginia Agenda,” intended to address rising energy costs and the impact of data center growth. Among the measures relevant to data center developers, the package includes legislation imposing stricter emissions standards on data center backup generators (resolving the previously pending SB 336/HB 1502 carryover bills), legislation giving localities new tools to assess the impact of proposed data center projects on nearby homes, schools and farmland and legislation intended to protect ratepayers from bearing the cost of new energy infrastructure driven by data center demand.
The Governor also signed legislation to rejoin the Regional Greenhouse Gas Initiative (RGGI), a multistate cap-and-trade program for power plant carbon emissions that Virginia had exited in 2023. To offset the utility bill impact associated with rejoining RGGI, the enacted budget includes a ratepayer “Consumer Credit” mechanism, which the administration has projected could save the average Virginia household up to $36 per year on utility bills. Separately, earlier this year the Governor created a new cabinet-level Chief Energy Officer position, now filled by Josephus Allmond, tasked with coordinating cost-lowering energy measures across state secretariats, including those affecting data centers.
The Governor also signed legislation to rejoin the Regional Greenhouse Gas Initiative (RGGI), a multistate cap-and-trade program for power plant carbon emissions that Virginia had exited in 2023. To offset the utility bill impact associated with rejoining RGGI, the enacted budget includes a ratepayer “Consumer Credit” mechanism, which the administration has projected could save the average Virginia household up to $36 per year on utility bills. Separately, earlier this year the Governor created a new cabinet-level Chief Energy Officer position, now filled by Josephus Allmond, tasked with coordinating cost-lowering energy measures across state secretariats, including those affecting data centers.
4. INDUSTRY AND STAKEHOLDER REACTION
Industry response has been sharply negative. Data Center Coalition President and CEO Josh Levi told Bloomberg Law that “[n]othing about this hastily assembled scheme will make life more affordable for Virginians or encourage job creation.” Levi further warned that the legislature is “breaking its commitments to an industry that has invested hundreds of billions of dollars, pays billions in annual taxes, and supports tens of thousands of jobs, including many blue-collar union workers who face an uncertain future as businesses prioritize new investment in states with competitive and stable business environments.”
Labor representatives also expressed concern. Don Slaiman, a political coordinator for the International Brotherhood of Electrical Workers, told Bloomberg Law that the deal fails to provide long-term certainty for his 17,000 members who rely on data center construction and upgrade work. “It’s the wrong time to be reassessing this exemption,” Slaiman said. He also noted that a House proposal for a broader study commission that would have included labor representatives was dropped in favor of the narrower joint legislative subcommittee.
Advocacy groups that had pressed for full repeal offered qualified praise. Brennan Gilmore, Executive Director of Clean Virginia, told Bloomberg Law that “[t]he data center industry still received the better end of this deal.” Gilmore pointed to actions in Ohio, Texas, Illinois and Washington, arguing that “Virginia’s elected leaders have more work to do.”
Labor representatives also expressed concern. Don Slaiman, a political coordinator for the International Brotherhood of Electrical Workers, told Bloomberg Law that the deal fails to provide long-term certainty for his 17,000 members who rely on data center construction and upgrade work. “It’s the wrong time to be reassessing this exemption,” Slaiman said. He also noted that a House proposal for a broader study commission that would have included labor representatives was dropped in favor of the narrower joint legislative subcommittee.
Advocacy groups that had pressed for full repeal offered qualified praise. Brennan Gilmore, Executive Director of Clean Virginia, told Bloomberg Law that “[t]he data center industry still received the better end of this deal.” Gilmore pointed to actions in Ohio, Texas, Illinois and Washington, arguing that “Virginia’s elected leaders have more work to do.”
5. NATIONAL CONTEXT
Virginia’s action comes amid a broader national reassessment of data center tax incentives. Ohio, Illinois and Arizona have each paused their data center tax incentive programs, and the Texas governor has signaled that repealing that state’s exemption should be a priority for its next legislative session. This multistate trend suggests that the favorable tax environment that fueled the industry’s rapid expansion may be contracting across the country, a development that investors and developers should weigh carefully when evaluating site selection and long-term project economics.
6. IMPLICATIONS FOR DEVELOPERS
Developers and operators of Virginia data centers should consider the following in light of this legislation:
- Update Financial Models. The $0.011/kWh energy consumption tax represents a material new operating expense. Developers should immediately update pro forma projections and assess impacts on project returns and tenant pass-through structures.
- Preserve the Sales Tax Exemption Benefit. With the exemption preserved, developers should continue to take advantage of tax-free equipment purchases under the existing framework. However, given Sen. Lucas’s stated intention to continue pressing for repeal, the long-term viability of this benefit remains uncertain.
- Plan for Continued Uncertainty. The two-year sunset on the energy consumption tax and the creation of a study subcommittee mean that the tax framework will be revisited, potentially as soon as the 2028 legislative session. Developers should build optionality into long-term investment decisions and lease structures to accommodate potential future tax increases or a full repeal of the sales tax exemption.
- Monitor the Joint Legislative Subcommittee and Study Process. The subcommittee’s proceedings will likely shape the next round of legislation, with a related work group expected to present findings to the General Assembly in November 2026 to inform bills for the January 2027 session. Developers and industry stakeholders should engage early and proactively to ensure that the subcommittee’s findings reflect the industry’s economic contributions and the practical implications of further tax changes.
- Review Lease and Contract Provisions. Landlords and tenants should review existing lease agreements to determine whether the new energy consumption tax qualifies as an operating expense, a pass-through item or a cost borne by one party. New agreements should address the allocation of this tax explicitly and include provisions that anticipate future changes to Virginia’s data center tax regime.
- Evaluate Multistate Diversification. Given the national trend of states reconsidering data center incentives, developers with geographically concentrated portfolios should evaluate whether diversification strategies mitigate regulatory risk. Industry warnings that companies may shift investment toward jurisdictions with more predictable regulatory environments reflect a market dynamic that will influence capital allocation decisions.
7. WHAT COMES NEXT
- Implementation of the Energy Consumption Tax. Having signed HB 30 into law on June 29, 2026, Governor Spanberger allowed the new $0.011/kWh energy consumption tax to take effect July 1, 2026. Developers should monitor for implementation guidance from the Virginia Department of Taxation regarding the mechanics of the tax, including its annual revenue cap and refund provisions.
- Joint Legislative Subcommittee. The subcommittee established by the budget will continue to study data center taxation, with a related work group expected to report findings to the General Assembly in November 2026 to inform bills introduced for the January 2027 session. Its findings will inform future legislative proposals when the energy consumption tax reaches the end of its two-year sunset period. Senate Finance and Appropriations Chair Louise Lucas has publicly reiterated that the fight over the sales tax exemption is not over, signaling continued legislative attention to the issue.
- Affordable Virginia Agenda Package Enacted. The backup generator emissions standards previously carried over from the 2026 session (SB 336/HB 1502) have now been resolved: Governor Spanberger signed this legislation into law on July 1, 2026 as part of her broader Affordable Virginia Agenda package, along with measures granting localities new tools to assess data center impacts and protecting ratepayers from bearing infrastructure costs driven by data center demand. A separate cost subsidy investigation (SB 339) remains pending and may see further action in the 2027 session.
- Potential Industry Response. Given the industry’s strong negative reaction to the energy consumption tax, developers should be alert to the possibility of organized industry opposition or legal challenges. As of the date of this alert, no litigation or formal industry legal challenge to the tax has been reported, though this remains an area to watch as the tax remains in effect and collections continue.
The attorneys in Whiteford’s Real Estate and Government Relations practice groups continue to monitor developments in Virginia’s data center regulatory environment. We will provide further updates as implementation guidance is issued for the energy consumption tax and as the joint legislative subcommittee and related work group advance their study process. If you have questions about how this legislation affects your projects or investments, please contact the authors of this alert, Nicole E. Bemberis or Joseph L. Stiles.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.