An Abrupt and Risky Policy Shift
Could Stall Virginia’s Digital Momentum
Virginia stands at a defining moment in building a 21st century economy.
Decisions about data centers and digital infrastructure, and how we tax them, and whether Virginia maintains a competitive tax structure with more than 35 other states will determine whether the Commonwealth continues to lead the next era of growth – or cedes that leadership to competing states.
The issue comes as the Virginia Senate just abruptly announced an idea to repeal the state sales and use tax exemption for data center equipment, accelerating the planned sunset from 2035 to January 1, 2027 – basically eliminating it in nine months.
Data centers of all sizes and shapes are the anchor component of digital infrastructure ecosystems that include local and regional fiber networks, internet exchange points, subsea cables, satellite uplink connections, and resilient energy systems.
Digital infrastructure powers today’s economy and everyday life, enabling cloud computing, AI, healthcare, education, finance, defense, and the digital tools people and businesses rely on daily.
RVA757 Connects supports investment in growing our digital infrastructure ecosystem, including the growth of data centers, in a way that we become one of the world’s recognized Global Internet Hubs.
Read our perspectives in these Op-Ed columns:
Now is not the time to eliminate the tax exemption. Here’s why:
1. Data centers and digital infrastructure drive economic growth.
The data center industry contributes an estimated 74,000 jobs, $5.5 billion in labor income, and $9.1 billion in annual GDP to Virginia’s economy, according to a 2024 report by the Joint Legislative Audit and Review Commission.
This economic impact has come in large part because of the data center tax exemption that was designed to attract and build this industry in Virginia. We are fortunate that this exemption is still in place.
Data centers accounted for 84% of all capital investment in the state tracked by the Virginia Economic Development Partnership (VEDP) between fiscal years 2022 and 2024.
Abruptly disrupting this sales tax incentive would slow new investment and, in turn, the industry and the job growth it supports.
2. Data centers and digital infrastructure are central to Virginia’s and the megaregion’s long-term competitiveness.
For more than a decade, Virginia has lagged other Southeastern states in population, employment, and GDP growth. Expanding data centers and digital infrastructure offers a rare opportunity for Virginia to catch up and lead, as technology-related investment and talent are closely tied to GDP growth.
Expanding data centers and digital infrastructure also offers the greatest opportunity to harness the power of artificial intelligence. As we move from generative AI to agentic AI – those systems that operate autonomously, manage complex workflows, and power real-time applications across every industry and daily life – that will require reliable, high-capacity, local computing infrastructure. Data centers sit at the core of this ecosystem.
This is why Metro Richmond and Hampton Roads have joined hands to become a Global Internet Hub, advancing a world class digital infrastructure ecosystem. This is giving the megaregion a competitive advantage, underpinning our key growth industries – including advanced manufacturing, cybersecurity, logistics, life sciences, and national defense.
The Metro Richmond-Hampton Roads megaregion is on the cusp of making the Global Internet Hub strategy work, connecting three of Virginia’s economic engines from Northern Virginia, to Metro Richmond and to Hampton Roads. This puts our megaregion on a world stage that will drive our economy for generations to come.
Repealing the tax exemption would compromise this emerging competitive advantage. This is precisely the wrong step to take at this time.
3. The risks are real and consequential.
There are hidden costs to everything.
An analysis from the Virginia Department of Taxation and VEDP concluded that eliminating the equipment sales tax exemption will actually COST taxpayers $1.3 billion rather than generating additional revenue or savings.
There’s also the potential cost of losing investment. Nearly all states including South Carolina, Georgia, and Alabama are aggressively competing for data center and infrastructure investment. Policymakers should not assume companies will continue expanding in Virginia regardless of costs or abrupt policy changes.
And there’s always the cost of reputation. Stable, predictable policies are the foundation of corporate confidence. Eliminating a sales tax exemption codified through 2035 would undermine trust in Virginia as a reliable business partner and send a troubling signal to companies already invested – or considering investment – here.
Summary:
Now is not the time to gamble Virginia’s economic future on an abrupt and risky policy shift.
Data centers and digital infrastructure are a proven and growing economic engine, powering jobs, capital investment, local tax revenue, and long-term competitiveness across the Commonwealth.
As the world rapidly operationalizes AI and demand for high-capacity computing accelerates, this is the moment to strengthen our digital advantage — not retreat from it.
Virginia has built a nationally recognized leadership position in digital infrastructure. Weakening that position through an abrupt policy reversal would inject uncertainty, slow investment, and signal instability at precisely the wrong time.
An abrupt policy reversal would erode Virginia’s competitive position, dampen investment, and send a damaging signal of instability at exactly the wrong moment.