Ohio Data Center Tax Exemption: Thresholds, Equipment, and How to Apply

The Ohio data center tax exemption can wipe out up to 100% of the state’s 5.75% sales and use tax on qualifying data center equipment, but only for projects that commit at least $100 million in capital investment and $1.5 million in annual payroll and secure an agreement with the state’s tax credit authority.¹² The exemption percentage and the length of the agreement are both set project by project, so two similar facilities can end up with meaningfully different deals.

The $100 Million Investment Threshold

Capital investment is measured at the project site and can be spread across three consecutive calendar years for projects beginning in or after 2015.² Qualifying spending covers acquiring, constructing, or improving real property and purchasing and installing hardware and machinery for the facility.

Two details often trip up applicants. First, when multiple taxpayers operate at the same site, their investments can be aggregated to reach $100 million. This matters most for co-location facilities where no single tenant would clear the bar alone. Second, costs incurred before a cutoff date set by the tax credit authority do not count. That date is fixed separately for each project, so any spending that happens before it is money you cannot credit toward qualification.²

The Payroll Requirement and Ramp-Up Period

The $1.5 million annual payroll floor is measured in compensation subject to Ohio income tax withholding, and it does not apply from day one.² The obligation begins on the first day of the 25th month after the agreement is signed, giving operators roughly two years to hire up. Once that grace period ends, the payroll floor applies every year for the remainder of the agreement term.

As with the investment threshold, payroll can be aggregated across taxpayers operating at the same project site. A smaller operator can qualify through a shared agreement covering other tenants rather than independently reaching either number.²

What Equipment Qualifies

The exemption applies to tangible personal property used to conduct data center operations. Ohio’s administrative code lists computers, servers, routers, switches, peripheral devices, racks, shelving, cabling and wiring, storage batteries, backup generators, uninterruptible power supply units, environmental control equipment, redundant power supply equipment, and prewritten software used to operate or maintain the data center.³ Cooling systems designed to manage the performance of data center equipment are explicitly included.

Equipment used to generate, transform, transmit, distribute, or manage electricity for data center operations also qualifies, which pulls in power distribution units, transformers, and switchgear.² The exemption does not cover electricity itself. The statute defines exempt items as tangible personal property, so the power hardware is exempt but the monthly utility bill is not.

Multi-Tenant Facilities and Supplemental Grantees

Ohio’s program accommodates co-location through a “supplemental grantee” mechanism. A tenant or co-location participant in the original grantee’s data center can elect to become a party to the existing agreement, subject to approval by the tax credit authority.³ Supplemental grantees can provide services to themselves or to third parties, and they do not have to independently meet the $100 million threshold. The original grantee’s commitments remain the foundation of the agreement.

How to Apply

Applications go to the Ohio Department of Development. A complete package should include financial projections showing the ability to hit the $100 million investment threshold, supported by bank statements or financing commitments, and payroll estimates that lay out a credible path to $1.5 million within the 25-month window. The project description should cover the construction timeline, the equipment installation schedule, and every entity that will claim exemptions on equipment purchases. That entity list feeds directly into the agreement, so leaving a participating company off it creates a problem later.

The Department of Development reviews the financial and payroll claims and may request additional documentation. The authority must also determine that the applicant is economically sound, has the ability to complete the project, and intends to maintain operations at the site for the full agreement term.²

One condition catches some applicants off guard. The authority must find that the exemption is a major factor in the applicant’s decision to begin, continue, or complete the project. This is essentially a but-for test. If the project would clearly proceed without the tax break, the authority has grounds to deny.²

What Happens If You Fall Short

If the director of development determines that a data center is no longer complying with its agreement, the director notifies the tax credit authority and the applicant. The taxpayer gets an opportunity to explain, but the authority has broad discretion from there.²

The authority can amend the agreement to lower the exemption percentage or shorten the remaining term, effective in the current calendar year. It can also terminate the agreement entirely and require repayment of all or a portion of the taxes that would have been owed on previously exempt equipment. When setting the recapture amount, the authority considers market conditions affecting the data center, whether the taxpayer still maintains other operations in Ohio, and each party’s share of responsibility for the noncompliance in multi-taxpayer agreements.

Once the authority settles on a figure, it certifies the amount to the tax commissioner, who issues a formal assessment. Each taxpayer in the agreement waives any statute-of-limitations defense against these assessments as a condition of entering the agreement.² Given the scale of equipment purchases involved, the recapture exposure can run into the millions.

Federal Benefits Worth Stacking

The state exemption is only one piece. Several federal provisions layer on top and can matter as much or more for the overall economics of a build.

100% Bonus Depreciation

The One Big Beautiful Bill Act made 100% first-year bonus depreciation permanent for qualifying property acquired after January 19, 2025.⁴ Servers, networking equipment, dedicated electrical infrastructure, and cooling systems all qualify. Writing off the full cost in year one instead of depreciating it over five to seven years is a significant cash flow shift on a nine-figure equipment budget.

Section 179D Energy-Efficient Buildings Deduction

Section 179D can exceed $5 per square foot for buildings that meet energy savings benchmarks along with prevailing wage and apprenticeship requirements.⁵ It applies to lighting, HVAC, and building envelope components such as insulation and roofing. Buildings placed in service in earlier years can still claim the deduction through an accounting method change on IRS Form 3115.

Renewable Energy Investment Tax Credit

Data centers installing on-site solar, battery storage, fuel cells, or geothermal can claim a minimum 30% investment tax credit under the Inflation Reduction Act. Operators who cannot use the credits directly because of net operating losses have the option to sell them for cash through the IRA’s transferability provision. The One Big Beautiful Bill Act set an accelerated termination date of December 31, 2027, for certain solar projects, so the window on solar-related credits is narrowing.

1
Ohio Department of Taxation. Sales and Use Tax
2
Ohio Legislative Service Commission. Ohio Code 122.175 – Tax Exemption for Sale, Storage, Use, or Other Consumption of Computer Data Center Equipment
3
Ohio Legislative Service Commission. Ohio Administrative Code Rule 122:28-1-01 – Definitions
4
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
5
U.S. Department of Energy. 179D Energy Efficient Commercial Buildings Tax Deduction