ESSAY · AUGUST 2026

Virginia built its data center empire on a promise made in 2008: give tech companies a break on sales tax, and they’ll bring jobs and growth to the Commonwealth. Eighteen years later, independent research suggests that promise has come at a staggering — and rapidly escalating — cost to taxpayers, students, and the communities that host the facilities.

The core finding

A report from the nonprofit watchdog Good Jobs First estimates that for every dollar Virginia gives up through its data center sales-and-use tax exemption, the state gets back only about 48 cents. That means the incentive runs at a net loss of roughly 52 cents on every dollar forgone — and this is not a fringe estimate. The 48-cent figure traces directly to Virginia’s own Joint Legislative Audit and Review Commission (JLARC), the state’s nonpartisan watchdog agency, in its 2024 report to the Governor and General Assembly.

It’s worth being precise about what this “loss” actually is, because it’s easy to misread. The 52 cents is not money paid out to anyone, redirected to another program, or spent elsewhere in the budget. It is money the state simply never collects. The “dollar” in the calculation is a dollar of sales tax that a data center company would ordinarily owe on its equipment and construction — servers, cooling systems, generators, building materials. Virginia’s exemption waives that tax, so the company keeps it as savings. The 48 cents is what the state recovers through other channels — the ordinary economic activity the project generates — for every dollar it forgoes.

So the loss is an opportunity cost, not a transfer. The roughly $1.6 to $1.9 billion in FY2025 forgone revenue is not money moved from schools to somewhere else; it is money that never entered public coffers at all, and therefore was never available for schools, health care, or roads in the first place. That distinction is exactly why Good Jobs First’s senior analyst Kasia Tarczynska framed it as “$1 billion less for food assistance, public health care, roads, schools” — not dollars spent elsewhere, but dollars never collected. The savings stay with the companies claiming the exemption, which JLARC found are overwhelmingly a handful of the largest operators.

A word about sources, in the interest of fairness: Good Jobs First is a watchdog organization with a stated point of view — it advocates for accountability in economic-development subsidies. But its central figure here does not rest on its own advocacy; it rests on JLARC, the Commonwealth’s own official auditor. When an advocacy group and the state’s nonpartisan watchdog arrive at the same number, that number deserves to be taken seriously.

Two arms of government, two very different stories

This creates a genuinely strange situation: two parts of Virginia government are telling opposite stories. The Department of Taxation’s own analysis, produced with the Virginia Economic Development Partnership, claims the exemption generates an 11 percent annual return — meaning the state comes out ahead. A 2026 legislative report pushed that further, to a 12 percent average return. So how can one dataset show a loss and another show a profit?

The discrepancy comes down to what gets counted. The state-agency reports lean on broad “economic activity” metrics — jobs, GDP contribution, capital investment — much of it self-reported by the same data center operators receiving the break. Good Jobs First counts only the direct tax revenue that actually lands back in state and local budgets. Asked to verify the state’s self-reported job numbers, Tarczynska pointed to a deeper problem: “Virginia’s disclosure laws throw barriers in our way. You can’t make the claim that the subsidy per job is low or acceptable without knowing that information.” Virginia does not publicly disclose which companies receive the exemption or how much each one gets — a gap flagged in the group’s 36-state review, which found Virginia offers some of the largest data center tax breaks in the country while providing among the least visibility into who benefits.

The cost has exploded — and here’s why

There is also a job-quality problem built into the math. The exemption requires a qualifying data center to invest at least $150 million and create 50 new jobs. But a state audit found that a typical large data center employs only about 50 permanent workers — roughly half of them contractors, not direct employees. In fiscal year 2025, the industry reported adding 1,610 new jobs while claiming a $1.9 billion tax benefit — which, by Good Jobs First’s calculation, works out to roughly $1.2 million in forgone revenue for every new job created.

Earlier state estimates put the exemption’s cost at $80 million to $100 million a year — and JLARC later found that the old estimating method “markedly underestimated” it. It has since grown more than tenfold. Forgone state revenue rose from an estimated $685 million in FY2023 to $1.02 billion in FY2024. The FY2025 figures are now in: Virginia’s Annual Comprehensive Financial Report puts the state’s forgone revenue at $1.6 billion — more than double the prior year by that report’s own accounting — and the Department of Taxation’s biennial report puts the combined state-and-local cost at $1.9 billion.

The reason it outran every early projection is structural, and worth understanding: the exemption applies not once, but every time a data center replaces its equipment. AI hardware — servers, chips, cooling gear — is swapped out every few years, and each replacement is exempt again. As Good Jobs First’s Anthony Elmo put it, companies “double-, triple-, and quadruple-dip on this sales and use tax every time they need to replace servers.” The 2008 legislation was written for a world of $50-million data centers replaced rarely; it now subsidizes multibillion-dollar AI campuses on a rolling basis. For scale, the exemption alone accounts for the large majority of all of Virginia’s economic-incentive spending — in FY2023 the state’s share was worth $683 million, while the next-largest incentive was worth $74 million.

Who actually benefits

The exemption’s benefits are far more concentrated than the “broad economic boost” framing suggests. JLARC found that just five companies received 82 percent of the exemption’s total value in FY2023 — $759 million of $929 million. Of the 62 data center companies that qualified in 2025, most of the benefit flowed to a handful of the largest operators.

Who pays

Good Jobs First’s analysis puts a human face on the lost revenue. Because about 26 percent of Virginia’s state sales tax is dedicated to K-12 education, the group estimates that roughly $267 million of the FY2024 loss would otherwise have supported public schools — about $212 per student statewide in a single year. (That figure reflects only the state portion; local and regional losses add several hundred million more.) The districts hosting the most data centers show the largest estimated hits: Good Jobs First estimates Fairfax County Public Schools would otherwise have received about $38 million more, Prince William about $19 million, and Loudoun about $17 million.

These are estimates, extrapolated from incomplete public data — Good Jobs First is careful to say so, and so am I. The money was never a line item removed from a school budget; it is revenue that, absent the exemption, the group estimates would have flowed to schools. But the scale is hard to wave away. Executive Director Greg LeRoy put it bluntly: “It means kids have more crowded schools. Kids and college students are really the biggest losers here.”

The strongest argument for the exemption — and its limit

Fairness requires stating the other side at full strength. Defenders of the exemption, including the state’s economic-development agency, argue it is the reason the industry located in Virginia at all. JLARC found that about 90 percent of the industry uses the exemption and that companies call it a key consideration in where they build — though it also noted that the exemption’s exact weight in those decisions is impossible to determine precisely. On the narrow factual question, the defenders are probably right: the tax break worked. It drew the industry here.

But “it worked” and “it was worth it” are not the same claim, and only the first has been demonstrated. The same policy that attracted the data centers attracted everything that comes with them: the enormous water withdrawals, the strain on the electric grid, the diesel backup generators, the transmission corridors cut across farmland, the noise and the land conversion — and the residents now living beside industrial facilities they were rarely consulted about. Whether drawing all of that to Virginia counts as a benefit or a burden is precisely the question the “it brought investment” framing skips past. A policy can succeed at its narrow goal and still be a bad bargain for the people who live with the result.

A partial fix, not a full one

Facing a genuine budget standoff in 2026, Virginia lawmakers preserved the sales tax exemption but added a first-of-its-kind offset: an electricity consumption tax of $0.011 per kilowatt-hour on data centers, effective July 2026, projected to raise about $600 million a year. It is a real step. But it is capped at $600 million annually, carries a two-year sunset, and by the state’s own projections recoups only a fraction of what the exemption gives away over the same period. It offsets the loss; it does not close it. The same budget compromise did take some steps worth noting: it set up a framework for enforceable noise standards, new data-collection requirements, and regulations on water cooling systems. Some legislators who wanted the exemption ended have pledged to revisit it as soon as 2027.

Good Jobs First’s recommendation goes further: cap how much any single facility or company can avoid in tax each year, and how much total revenue the program can forgo — or, failing that, let the exemption reach its scheduled 2035 sunset rather than renewing it unexamined. A related national report suggests capping combined state and local subsidies at $50,000 per permanent job, a threshold Virginia’s program passes many times over.

Why this matters beyond Northern Virginia

Most of these numbers come from the counties that already host the industry at scale. But the exemption is statewide, and the same structure is on offer to rural counties being courted now — including here in the Shenandoah Valley. A community weighing a data center today is weighing this same bargain: a tax break that, by the state’s own auditor’s math, returns less than half its cost, concentrates its benefit among a few of the world’s largest companies, and quietly grows every time the servers are replaced. The lesson from the places that went first is not that the industry is uniformly bad. It is that the terms deserve hard, public scrutiny — and enforceable limits — before the concrete is poured, not after.

The bottom line

Virginia’s data center exemption was designed in 2008 on a projection that it would cost about $1.5 million a year. It now costs well over a thousand times that, while independent auditing suggests the state recovers less than half of what it gives away. Whether that trade is worth it depends on which numbers — the industry-adjacent agency figures or the independently audited ones — policymakers choose to believe. But with JLARC, Virginia’s own nonpartisan watchdog, standing behind the 48-cent figure, the residents and school districts absorbing the rising cost have a strong, credible basis to demand more transparency and tighter caps before the exemption’s 2035 sunset.