Virginia Data Center Tax Exemptions: Eligibility, Equipment, and Sunset

The Virginia data center tax exemption removes state sales and use tax on computer equipment and enabling software purchased for a qualifying data center, provided the facility hits statutory investment, job, and wage thresholds set under Code of Virginia § 58.1-609.3(18). The program has been in place since 2010 and is currently scheduled to expire on June 30, 2035, though its future is caught up in Virginia’s ongoing budget fight.¹

Who Qualifies

Three thresholds have to be met. The facility must be in a Virginia locality. It must generate at least $150 million in new capital investment. And the operator, together with any tenants, must create at least 50 new jobs tied to operating or maintaining the data center, each paying at least 150 percent of the prevailing average wage for that locality, excluding fringe benefits.¹

Because the wage floor is set locally, the dollar figure that satisfies the 150 percent rule is much higher in Northern Virginia than in a rural county. Health insurance, retirement contributions, and other fringe benefits do not count toward the wage calculation.²

Before the exemption can be used, the operator has to sign a memorandum of understanding with the Virginia Economic Development Partnership Authority (VEDP). The MOU spells out how investment and jobs will be measured, the timeline for hitting the targets, and what triggers repayment if the operator falls short.¹

Lower Thresholds in Distressed Localities

If the data center sits in a locality that qualifies as distressed at the time the MOU is signed, the capital investment threshold drops from $150 million to $70 million and the job requirement drops from 50 to 10. The 150 percent wage requirement stays put.¹ VEDP defines a distressed locality as one where unemployment and poverty rates both exceed the state average.²

Colocation Tenants

Tenants in a colocation facility can use the exemption too. The operator and its tenants only need to meet the investment and job thresholds together, not individually.¹ The colocation operator signs the MOU on behalf of the group. Each tenant that wants to claim the exemption executes a separate Participation Certificate and Agreement with the operator, who submits it through VEDP’s Division of Incentives to the Department of Taxation. Taxation then issues an exemption certificate directly to the tenant.²

One catch worth flagging: qualifying purchases have to be made after the exemption certificate’s effective date. Equipment bought before that date does not qualify, even if the MOU is already signed.

What Equipment Is Covered

The exemption covers computer equipment and enabling software used for processing, storing, retrieving, or communicating data. That reaches beyond servers and networking gear to the physical plant that keeps them running. A 2010 Tax Commissioner ruling grouped qualifying items into a few categories:³

Core IT hardware such as servers, mainframes, network infrastructure, data storage equipment, cabling, switches, and wiring.
Power systems including generators, electrical substations, power distribution equipment, cogeneration equipment, batteries, radiators, exhaust fans, and fuel storage tanks.
Cooling systems including chillers, computer room air conditioners, HVAC systems, cooling towers, water pumps, piping, and water storage tanks.
Support equipment like server racks, cabinets, cable trays, and remote monitoring systems used to control exempt equipment.

Replacement, upgrade, and supplemental equipment continues to qualify after the initial buildout. What does not qualify: standalone software sold separately from equipment, general building improvements, fixtures, office furniture, landscaping, and anything else unrelated to the computing operation.¹

How to Claim It

Start by contacting VEDP to negotiate and execute the MOU. Once that is in place, the operator files a Data Center Retail Sales and Use Tax Exemption Application with the Virginia Department of Taxation. The application asks for the operator’s federal employer identification number, the facility’s physical address, and an estimate of the total value of qualifying equipment.²

After review, the Department of Taxation issues an exemption certificate. The operator uses Form ST-11A, Virginia’s Retail Sales and Use Tax Certificate of Exemption, when buying qualifying equipment.⁴ The certificate and ST-11A get presented to vendors at the point of sale, and vendors keep copies to justify not collecting tax if they are audited. Savings hit immediately rather than through a later refund.

What the Exemption Is Worth

Virginia’s general sales tax rate runs 5.3 percent in most of the state, 6 percent in Northern Virginia, Hampton Roads, and Central Virginia, and up to 7 percent in a few localities.⁵ On a $150 million equipment purchase, that is roughly $8 million to $10.5 million saved, depending on location.

Across all participating facilities the impact is much larger. For fiscal year 2025, operators reported approximately $33.2 billion in exempt equipment and software purchases and a total reported tax benefit of about $1.9 billion.⁶

Annual Reporting and Clawback

Keeping the exemption means filing annual reports with both VEDP and the Department of Taxation. Each report has to cover capital investment made to date, total data center jobs, the average annual wage for those jobs, qualifying equipment expenditures, and the value of the exemption received. If the facility has tenants, the operator reports for them as well.² The figures are subject to verification, so complete supporting records matter. Changes in ownership or use should be reported promptly, since the MOU is tied to specific commitments that may not survive a change in control.

The clawback provisions are real. If the final report shows the facility missed its investment or job targets by the agreed performance date, the operator and its tenants must stop using the exemption immediately and repay the full value of the tax benefit already received. The trigger is not limited to the final deadline. If at any earlier point the operator or VEDP determines the targets cannot be reached, the exemption ends and repayment kicks in.² On a project that has been buying tax-free for years, that bill can be enormous, which is why the MOU’s repayment language deserves careful negotiation up front.

Sunset and Pending Legislation

Under current law, the exemption runs from July 1, 2010, through June 30, 2035.¹ VEDP also describes two extension pathways for very large investments: a $35 billion capital commitment with 1,000 new jobs can push the exemption to 2040, and a $100 billion commitment with 2,500 jobs can push it to 2050.²

Whether the exemption survives that long is unsettled. As of late April 2026, it is at the center of an unresolved Virginia budget standoff. Senate Democrats have pushed to eliminate it entirely and reclaim the roughly $1.9 billion in annual revenue. House Democrats and Governor Spanberger have favored keeping it to protect Virginia’s position in the data center industry. A compromise conditioning the exemption on clean energy requirements has been discussed but not finalized.⁶

One 2026 regular session bill, SB465, would have added a power usage effectiveness standard and a carbon-free electricity requirement as conditions of the exemption. It was left in the Senate Finance and Appropriations Committee and did not advance.⁷ Budget negotiations, including a special session, are ongoing. Anyone planning a new data center investment in Virginia should treat the exemption’s continued availability as uncertain and watch the outcome of those negotiations before committing to a purchase schedule that depends on it.

1
Virginia Code Commission. Virginia Code 58.1-609.3 – Commercial and Industrial Exemptions
2
Virginia Economic Development Partnership. Data Center Retail Sales and Use Tax Exemption
3
Virginia Tax. Ruling 10-121
4
Virginia Tax. Sales Tax Exemptions
5
Virginia Tax. Retail Sales and Use Tax
6
Virginia Legislative Information System. Biennial Data Center Retail Sales and Use Tax Exemption Report
7
Virginia State Legislative Information System. SB465 – 2026 Regular Session