Recent developments in North Carolina’s tax policy indicate a significant shift for data centers operating within the state. State leaders have initiated a rollback on certain tax exemptions, potentially impacting data centers’ operational costs and influencing future investment decisions.
Electricity Tax Exemption Under Review
Speaker of the House Destin Hall and Senate leader Phil Berger have reached a consensus to retract the sales and use tax exemption specifically for electricity purchased by data centers. According to estimates from the N.C. Department of Commerce, this change could generate an additional $20 million in tax revenue annually for the state (source).
Despite this rollback, other sales tax exemptions remain intact, including those on construction materials, servers, software, and cooling equipment, which Governor Josh Stein and various advocates have urged to reconsider.
Current Legislative Position
Data centers in North Carolina benefit from tax exemptions if they invest at least $75 million over five years and meet specific wage and insurance criteria. Hall has publicly stated his belief that data centers should adhere to the same tax obligations as other businesses, while Berger has expressed interest in evaluating the necessity of these exemptions.
During a recent press conference, Berger explained the selective rollback, stating, “You’re going to hear me say this a bunch: It’s what we were able to agree to.” He also highlighted the rollback as a means to increase revenue for teacher and state employee raises, anticipating a favorable revenue report in the near future.
Industry Response and Further Considerations
Industry representatives argue that these tax exemptions are crucial to location decisions and promote rapid technological advancements by allowing quicker server and equipment replacements. The N.C. Department of Commerce estimates the value of the electricity exemption could reach $160 million annually if potential data center projects are realized.
Equipment replacement exemptions are currently valued between $25 million and $37 million, potentially growing to $205 million to $308 million. Furthermore, data centers might avoid $1.5 billion to $2.3 billion in sales taxes on construction materials.
Future Legislative Developments
While the rollback on the electricity exemption has been confirmed, Hall indicated potential for further measures against tax exemptions for data centers during the upcoming short session. A bipartisan bill proposing a complete repeal of these exemptions has been introduced but awaits committee review (source).
For now, the budget agreement, announced by the House Republican Caucus through an infographic on X, remains a partial arrangement, with budget writers set to finalize the details. Hall noted the desire to avoid over-incentivizing a sector already flourishing in North Carolina (source).
