Understanding and Navigating Data Center-Related Tax Incentives in 2025
Between the existing power needs of cloud service providers and the rapidly growing demand for artificial intelligence (AI), the data center industry is quickly becoming one of the largest and most powerful in the world. With global revenue from operations and infrastructure projected to reach more than $450 billion by the end of 2025, companies seeking to contribute to data center design, development and deployment now have an unprecedented opportunity to emerge as leaders at the forefront of one of the most significant technological revolutions in human history.
Such opportunities may be uniquely pronounced in the U.S., where businesses not only stand to profit handsomely from data center innovation but also from the myriad state and local tax incentives being offered in different jurisdictions. In this article, we’ll provide a broad overview of tax initiatives surrounding data centers across the country, as well as take a closer look at two specific, state-level incentive programs for businesses operating in Georgia and Tennessee.
OVERVIEW OF DATA CENTER-RELATED TAX INCENTIVES BY TYPE
While most tax incentives available to U.S. businesses in the data center industry will vary based on state and local jurisdictions, available benefits will, broadly speaking, take on one or more of the following forms:
- Property tax incentives. Given that data centers are almost always large, energy-intensive structures, property taxes often place a significant burden on development and operational costs. To encourage further investment in and deployment of new data centers, many states will offer incentives in the form of tax abatements that reduce or delay property taxes for a designated timeframe and based on factors such as investment size and job creation. In some cases, businesses may also be exempt from personal property taxes on key components of their operations.
- Sales and use tax incentives. The purchase and use of high-technology equipment needed to efficiently operate data centers today are also costly investments. Fortunately, there are a handful of states that offer significant breaks and even 100% exemptions on sales and use taxes for qualifying data center operators.
- Electricity tax incentives. Data centers have always been inherently energy-intensive structures, and the cost of electricity needed to power processors and cooling equipment is becoming increasingly exponential as operators attempt to meet the rising power demands associated with AI technologies. In some states, operators will have the opportunity to save on energy costs through a considerable reduction to their electricity taxes.
- Investment tax credits. Finally, as the U.S. looks to meet or surpass the pace of its competitors when it comes to AI innovation, many states are prepared to offer attractive tax credits—sometimes to the tune of hundreds of millions—for businesses who meet specific minimum investment and job creation requirements.
STATE & LOCAL TAX INCENTIVE EXAMPLES
To better understand how these tax incentives work on a state and local level, it can help to look at specific tax codes and what they offer qualifying data center operators and customers. Here are just a couple examples of existing tax programs in the states of Georgia and Tennessee:
Georgia – Data Center Sales & Use Tax Exemption Program (O.C.G.A. symbol 48-8-3(68.1)
In the state of Georgia, businesses building and/or operating data centers may enjoy complete exemptions from state and local sales and use taxes on all high-technology data center equipment.
To qualify, business owners must either prove to operate or be a consumer of high-technology data centers, as well as meet minimum investment thresholds of between $25 million and $250 million, depending on the county. Additionally, they must contribute at least 25 “new quality jobs” as defined by Georgia legislation in a single county within a single year, or twice that figure statewide across two years. (Qualifying employees must work at least 30 hours per week and earn 110 percent the average wage of the relevant county.)
Importantly, the state of Georgia is unique in that it may require certain businesses to post a bond of up to $20 million upon application, which may be surrendered to the Department of Revenue if the minimum investment threshold cannot be met.
Tennessee – Tenn. Code § 67-6-206(c)
In the state of Tennessee, businesses can not only qualify for tax exemptions on critical cooling equipment and power infrastructure but also achieve a reduced tax rate of 1.5 percent on the data center’s use of electricity.
To qualify, business owners must demonstrate a total capital investment into their operations—i.e., investment in real estate, tangible personal property or software obtained within the state—of at least $100 million during a period of no more than three years, which may be extended for an additional year with good cause for the threshold not being met within the initial three-year period. Business owners must also create 15 net new full time employee jobs paying 150 percent of the state’s average occupational wage.
NEED ASSISTANCE NAVIGATING DATA CENTER-RELATED TAX INCENTIVES?
Although taking advantage of available tax incentives can be a great way to cut costs while profiting from innovation within the booming data center industry, it’s paramount that business owners take the time to fully understand all relevant legal requirements and approval procedures, especially as they continue to evolve at a rapid and unpredictable pace. If you’re looking for further guidance and strategies for leveraging data center-related tax incentives, contact your Windham Brannon advisor today, or reach out to Micah Greenberger and Tim Clancy.
