Indiana Data Center Tax Incentives: Exemptions and Compliance

Indiana data center tax incentives include a full exemption from the state’s 7% sales and use tax on qualifying equipment and the electricity that powers it, lasting up to 25 years for most projects and up to 50 years for investments over $750 million. A separate local incentive can remove enterprise IT equipment from personal property tax rolls. Both are conditioned on meeting minimum investment thresholds that scale with the size of the county where the facility sits.

The State Sales and Use Tax Exemption

The core benefit is codified at Indiana Code 6-2.5-15 and administered by the Indiana Economic Development Corporation (IEDC). Once a project is approved, purchases of qualifying data center equipment and the electricity that runs it are exempt from Indiana’s 7% gross retail and use tax.¹

Length of the exemption depends on how much the operator invests. Projects below $750 million can receive the exemption for up to 25 years. If total investment exceeds $750 million, the IEDC may extend it for up to 50 years.¹

Under IC 6-2.5-15-2, “data center equipment” is defined broadly and covers, when preapproved by the IEDC:²

Servers, routers, networking switches, racks, chassis, fiber optic and copper cabling, and monitoring and security systems.
Substations, generators, backup generators, uninterruptible power supplies, switchboards, batteries, cabling, conduit, and fuel piping and storage.
Chillers, cooling towers, air handling units, fans, ducting, filters, refrigerant piping, adiabatic and free cooling systems, and water softeners.
Facilities or mechanisms designed to collect, conserve, and reuse water.
Preassembled components and modular data centers.
Software used in data center operations.
All electricity consumed by qualifying equipment, excluding power used in administrative functions.

The electricity piece is treated as “data center equipment” under the statute, so the 7% tax falls off every utility bill covering compute, storage, cooling, and power distribution. Office lighting and similar administrative uses are carved out. The definition also reaches conduit, ducting, and cabling that connect distributed buildings on the same campus.²

Investment Thresholds by County

Indiana uses a tiered system based on county population. Under IC 6-2.5-15-10, a “qualified data center” must meet one of three minimums:³

Counties over 100,000 residents: at least $150 million in qualifying investment.
Counties between 50,000 and 100,000 residents: at least $100 million.
Counties with 50,000 or fewer residents: at least $25 million.

Those figures represent the total cost of acquiring and installing qualifying data center equipment. The operator has five years from the date of its award certificate to hit the applicable threshold.³ The clock runs from the certificate date, not from groundbreaking, so permitting and construction lead times eat into the window.

Local Personal Property Tax Exemption

Separate from the state sales tax program, Indiana allows local governments to exempt enterprise IT equipment from personal property taxes under IC 6-1.1-10-44. This one is negotiated directly with the county or municipality where the facility will sit.⁴

To qualify, the operator (together with any lessors or lessees of qualifying property at the site) must collectively invest at least $25 million in real and personal property at the facility. The average wage of employees at the site must be at least 125% of the county average wage. The exemption covers servers, routers, enterprise-class networking systems, and generators or other uninterruptible power supply equipment; it does not cover hardware designed for single-user or workstation-level use.⁴

The local designating body, either the city council or the county commissioners, enters into an agreement with the operator setting the duration and terms. Because this is a local decision, availability and generosity vary by jurisdiction, and it makes sense to raise it with local officials early in site selection.

How to Apply

Applications for the state sales tax exemption run through the IEDC’s online portal.¹ The submission requires:

Site information, including the legal description of the property and the population of the county where the facility will operate (this sets the applicable investment threshold).
An investment plan breaking down expected purchases of qualifying equipment across the five-year window.
Projected job creation, anticipated wages, construction timelines, and hardware installation schedules.
Financial projections demonstrating that the project will meet the minimum threshold for its county tier.

The IEDC evaluates the application against the statutory investment requirements. If the project qualifies, the IEDC and the applicant sign a formal written agreement setting each side’s responsibilities and the exemption terms. After the agreement is executed, the operator receives a data center exempt collection certificate, which it can then use to buy qualifying equipment and electricity without paying the 7% tax at the point of sale.⁵

Staying Compliant After Approval

The certificate comes with ongoing obligations. Operators file annual reports with the IEDC documenting cumulative investment and current employment, which the state uses to verify that the facility still meets the terms of its agreement.

If the IEDC finds noncompliance, IC 6-2.5-15-18 directs it to notify the Indiana Department of Revenue, which can assess the operator for the full amount of tax avoided through the exemption, plus interest and any applicable penalties.⁶ The operator gets a chance to explain the noncompliance before the assessment issues, but years of accumulated savings can be at stake.

The most common risk is missing the minimum investment threshold inside the five-year window. Construction delays, supply chain disruptions, and shifting corporate plans can all slow a project. Build buffer into the timeline and track qualifying expenditures against the statutory deadline.

Stacking With Federal Bonus Depreciation

Indiana’s state and local incentives can be paired with federal tax treatment. Under the One Big Beautiful Bill Act signed in 2025, businesses can deduct 100% of the cost of qualifying equipment in the first year it is placed in service, and the deduction applies to both new and used equipment.⁷ Servers, networking gear, cooling infrastructure, and power systems typical of a data center all fall within scope.

The layers add up. An operator buying $50 million in qualifying equipment in Indiana pays no state sales tax on the purchases under IC 6-2.5-15 and can write off the full $50 million against federal taxable income in year one. In a rural county that also grants a local property tax exemption under IC 6-1.1-10-44, the same equipment enters service with all three major tax layers either removed or deferred.

Bonus depreciation applies permanently to property acquired after January 19, 2025, giving planners certainty that was absent during the earlier phase-down. Coordinate purchase timing with a tax advisor to line up the state exemption certificate, the placed-in-service date for federal purposes, and any local agreement.

1
Indiana Economic Development Corporation. Data Center Sales Tax Exemption
2
Indiana General Assembly. Indiana Code 6-2.5-15-2 – Data Center Equipment
3
Indiana General Assembly. Indiana Code 6-2.5-15-10
4
Indiana General Assembly. Indiana Code 6-1.1-10-44 – Enterprise Information Technology Equipment
5
Indiana General Assembly. Indiana Code 6-2.5-15-16 – Sales Tax Exemption
6
Indiana General Assembly. Indiana Code 6-2.5-15-18
7
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill