Illinois Data Center Tax Incentives: Exemption, Thresholds, and Credits

Illinois data center tax incentives center on a full exemption from state and local sales and use taxes on qualifying equipment for facilities certified by the Department of Commerce and Economic Opportunity (DCEO). To qualify, a project must commit at least $250 million in capital investment and create at least 20 new jobs over a 60-month period, operate under a Project Labor Agreement, and earn a recognized green building certification within two years of being placed in service. Projects built in designated underserved areas get an additional 20% income tax credit on construction wages.

What the Sales and Use Tax Exemption Covers

A certified data center is exempt from the Retailers’ Occupation Tax, the Use Tax, the Service Use Tax, the Service Occupation Tax, locally imposed retailers’ occupation taxes collected by the Department of Revenue, and the Chicago non-titled Use Tax.¹ The exemption reaches purchases by the owner, operator, tenants, and their contractors and subcontractors.

Qualifying equipment includes servers, data storage devices, network connectivity equipment, racks, cabinets, telecommunications cabling, raised floor systems, cooling systems and towers, battery systems, emergency generators, electrical distribution systems, monitoring and security systems, and all component parts needed to install, maintain, repair, or replace any of those items.² If a piece of equipment is necessary to run the facility’s computing or power infrastructure, it generally qualifies.

What the Exemption Does Not Cover

The exemption applies to tangible personal property, not to the utility bill itself. Equipment that generates, transmits, and manages electricity is exempt, but the cost of the electricity consumed by the facility is not. Fuel used in general operations is also excluded. The one carve-out is fuel for emergency backup generators supplying uninterrupted power to servers, which does qualify.²

Investment and Job Thresholds

The financial gate is $250 million in capital investment over 60 months. The figure can be met collectively by the owner, operator, and tenants combined, so a multi-tenant facility does not need a single entity funding the whole amount.³ The money must go toward building a new facility, expanding an existing one, or making a major upgrade.

Within the same 60-month window, the project must create at least 20 new full-time or full-time equivalent jobs tied to operating or maintaining the data center. Total compensation for those jobs must equal or exceed 120% of the average wage for full-time employees in the county where the facility sits, using U.S. Bureau of Labor Statistics figures. The statute says “total compensation,” which includes benefits rather than base salary alone.³

Project Labor Agreement Requirement

All construction and renovation work must be performed under a Project Labor Agreement approved by the Department. A PLA is a pre-hire collective bargaining agreement between the developer and labor organizations covering wages, benefits, and working conditions during construction.¹ It is not optional. Without an approved PLA, the facility will not be certified.

Green Building Certification Within Two Years

Within two years of being placed in service, the data center must prove it is either carbon neutral or has earned certification under a recognized green building standard. The statute accepts any of the following:³

BREEAM (New Construction or In-Use)
ENERGY STAR
Envision
ISO 50001 energy management
LEED (Building Design and Construction, or Operations and Maintenance)
Green Globes (New Construction or Existing Buildings)
UL 3223
Any equivalent program the Department approves

ENERGY STAR, for example, requires a score of 75 or higher on the EPA’s Portfolio Manager tool, which ranks the facility’s energy performance against comparable buildings nationwide. LEED and Green Globes look more broadly at building design and systems. The two-year window lets operators pursue certification as the facility ramps up, but missing the deadline puts continued tax benefits at risk.

Construction Wage Credit in Underserved Areas

Data centers built in areas the state designates as underserved qualify for an income tax credit equal to 20% of the wages paid to construction workers on the project. The credit applies against Illinois income taxes and is available for each taxable year in which qualifying wages are paid. To claim it, the operator submits wage documentation to the Department at year end, and the Department issues a certificate of verification for the credit amount.⁴

The credit does not lower the $250 million investment threshold. A project in an underserved area still has to hit the same capital and job benchmarks to receive the sales and use tax exemption.⁵

Applying and the Memorandum of Understanding

Applications go through DCEO’s website. The Department wants detailed financial and operational projections: a capital investment schedule showing how the $250 million threshold will be reached over 60 months, job descriptions and salary benchmarks demonstrating the 120% wage requirement, and documentation of the project’s green building strategy.⁵

After the Department’s Business Development Committee approves the application, the state enters into a Memorandum of Understanding with the operator. The MOU is the governing legal document for the whole incentive relationship. At a minimum it spells out the capital investment details, the number of jobs to be created, the timeline for hitting those targets, the repayment obligation if targets are missed, the duration of the exemption, and any other terms the Department requires.³

How Long the Exemption Lasts

Tax exemptions run for up to 20 years, but they are not granted in one long stretch. The Department issues certificates in five-year increments. At each five-year mark, the operator has to show continued compliance with the statute, the administrative rules, and the MOU before the certificate is renewed.⁵

Between renewals, the operator submits annual reports documenting compliance with the investment and hiring commitments, backed by payroll records and capital expenditure receipts. If commitments have not been met, the Department can decline to renew the certificate, and the MOU’s repayment provisions let the state claw back tax savings already claimed.³ Once the certificate is issued, the operator and its tenants present it to vendors to make tax-exempt purchases; contractors and subcontractors on the project can use it too, as long as it remains active.⁴

Federal Tax Benefits That Can Stack

The Illinois exemption addresses state and local taxes. Federal tax benefits run on a separate track and can layer on top of the state program.

100% Bonus Depreciation

The One Big Beautiful Bill Act permanently restored 100% first-year bonus depreciation for qualified property acquired after January 19, 2025. Equipment placed in service in 2026 and beyond can be fully deducted in the year of purchase rather than depreciated over multiple years, which produces significant early-year cash flow for a facility spending hundreds of millions on servers and infrastructure.⁶

Clean Electricity Investment Credit

Data centers that generate or procure zero-emission electricity on-site may qualify for the Section 48E clean electricity investment credit. The base credit is 6% of the qualified investment, rising to 30% for facilities that meet prevailing wage and apprenticeship requirements. Projects in designated energy communities receive an additional 10 percentage points on top of the 30% rate.⁷ Because qualifying Illinois facilities already operate under a Project Labor Agreement, meeting federal prevailing wage standards to unlock the higher rate may take only modest additional compliance work.

Section 179D Energy Efficient Building Deduction

Owners who design the facility to exceed baseline energy efficiency by at least 25% may claim the Section 179D deduction. For 2025, the deduction ranged from $0.58 to $1.16 per square foot at the base rate, or $2.90 to $5.81 per square foot for projects meeting prevailing wage and apprenticeship requirements, with annual inflation adjustments.⁸ The green building certification Illinois already requires often overlaps with the energy performance improvements needed to qualify.

1
Illinois Department of Commerce and Economic Opportunity. 2024 Data Center Investment Program Annual Report
2
Cornell Law Institute. Illinois Administrative Code tit. 86 Section 130.1957 – Tangible Personal Property Used in the Construction or Operation of Data Centers
3
Illinois General Assembly. Illinois Code 20 ILCS 605/605-1025 – Data Center Investment
4
Cornell Law Institute. Illinois Administrative Code tit. 14 Section 521.100 – Certificate of Exemption or Verification
5
Illinois Department of Commerce and Economic Opportunity. Data Center Investment Tax Exemptions and Credits
6
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
7
Office of the Law Revision Counsel. 26 USC 48E – Clean Electricity Investment Credit
8
Internal Revenue Service. Energy Efficient Commercial Buildings Deduction