State data center tax incentives and Opportunity Zones

Most of them. The National Conference of State Legislatures (NCSL) reported in April 2026 that 38 states offer dedicated data center tax incentives.^1,2 Good Jobs First counts 36 states that exempt data center building materials and IT equipment from sales and use tax, and found only 11 of them name the companies that receive the breaks.³

Scrutiny is rising. Good Jobs First estimates states lose more than $3 billion a year to these exemptions.⁴ In the 2026 sessions, lawmakers in 28 states introduced bills to scale back or modify programs; nine considered full repeal and four considered creating new incentives.¹

Yes, because they reduce different taxes. Opportunity Zone (OZ) benefits defer and exclude federal capital gains tax for investors in a Qualified Opportunity Fund (QOF). State data center incentives reduce sales and use tax on equipment and construction, property tax on the facility, or tax on electricity. Neither program generally conditions eligibility on the other. See combining Opportunity Zones with other incentives.

Two practical points matter. First, the equipment exemption usually benefits whoever buys the equipment, which in a leased data center is often the tenant. Second, state investment thresholds may not count leased property: Iowa's revenue department held in a 2024 declaratory order that lease value cannot count toward its $200 million minimum.¹² The landlord-tenant split therefore affects both the OZ tests and the state incentive.

Thresholds combine capital investment, jobs and wages, and they vary widely. The table summarizes selected programs and their 2026 status.

Several, and the changes came quickly. Each of the following is stated as far as the cited sources support; confirm current status with the state agency before relying on it.

• Ohio: on May 27, 2026, Gov. DeWine directed the Tax Credit Authority to pause new data center exemption requests while a joint legislative committee studies the sector. The governor's release says this is not a ban on data centers.^7,8
• Arizona: Gov. Hobbs signed a budget, effective July 1, 2026, with a three-year moratorium on new data center sales tax exemption applications, including renewals. Existing recipients are not affected.⁹
• Illinois: Gov. Pritzker announced a two-year suspension effective July 1, 2026. Because lawmakers did not act, it works by halting application processing at the Department of Commerce and Economic Opportunity. Whether the pause took effect as announced should be confirmed with the department.¹⁰
• Virginia: the 2026 budget preserved the sales and use tax exemption and created a Data Center Electricity Consumption Tax of $0.011 per kWh from July 1, 2026, capped at $600 million per fiscal year with refunds above the cap.⁶ Sources differ on whether the governor signed the budget or it took effect when lawmakers accepted her amendments.¹⁴
• Iowa: H.F. 976, signed June 6, 2025, limits the electricity exemption for new or expanded facilities to 10 years in cities over 30,000 people and 15 years in smaller cities.¹²
• Other states, per secondary roundups: Maine removed business-equipment exemption eligibility for facilities starting operations on or after August 1, 2026; Washington narrowed exemptions from July 1, 2026; North Carolina repealed the exemption on data center electricity; Massachusetts paused new applications; and Nebraska ended access through the ImagiNE Nebraska Act.¹¹

Through who holds title. Many local deals use a payment in lieu of taxes (PILOT), often with a public entity holding title and leasing the facility back. Proposed or approved examples include Amazon's proposed 30-year PILOT in Wilmington, Ohio, at 30% of the property taxes otherwise owed.¹⁵

Analysis: if a port authority or development agency holds title, the Qualified Opportunity Zone Business (QOZB) may hold the facility as leased property rather than owned property for OZ purposes. Leased tangible property can count toward the 70% test if the lease is on market terms, and related-party leases face extra limits, including a ban on prepaying more than 12 months of rent.¹⁸ Whether tax ownership stays with the QOZB under the PILOT documents is a question for counsel. See leased property rules for Opportunity Zone businesses.

Not all of them. OZ benefits are federal, and each state decides whether its income tax follows them. California does not conform to the federal OZ deferral or exclusion and has no similar provision.¹⁹ Other states have been reported as non-conforming or partly conforming, but lists differ across sources and may not reflect 2026 sessions. See state tax treatment of Opportunity Zone investments.

Federal policy is also in play. On September 16, 2026, Sen. Josh Hawley introduced the No Tax Breaks for Data Centers Act, which would exclude data centers from OZ benefits; it was referred to the Senate Finance Committee and has not been enacted.¹⁷ See the risks of Opportunity Zone investing.

Treat the state incentive as a condition to confirm before the main equity tranche, not an assumption in the model. Compliance is being checked: in Texas, only 20 of 138 qualified data centers had been audited as of a July 2026 hearing, and 6 of those 20 were out of compliance.¹³

Align timelines as well. Virginia, for example, requires a memorandum of understanding with its economic development partnership and repayment if targets are not met within three years.⁵ Those dates should sit inside the project's development timeline.