Data center investment continues to accelerate across the United States, but the sales tax incentives used to attract those projects are becoming less predictable. For developers, operators, contractors, and technology companies, 2026 has reinforced an important point: a data center exemption should never be treated as a permanent assumption in a project model.
States are taking noticeably different approaches. Some continue to offer broad exemptions for qualifying equipment and infrastructure, while others are narrowing benefits, removing electricity from the exemption base, or temporarily closing incentive programs to new applicants. That creates a moving target for companies evaluating new locations or budgeting large capital purchases.
North Carolina provides one of the clearest 2026 examples. Session Law 2026-41 repealed the sales and use tax exemption for electricity used at certain certified data centers. The North Carolina Department of Revenue states that the repeal is effective for qualifying billing periods beginning on or after August 6, 2026. Other qualifying data center purchases may continue to receive favorable treatment, but electricity now requires separate attention when modeling operating costs.
Minnesota made a similar distinction. Electricity used by qualified data centers stopped qualifying for the state’s sales tax exemption beginning July 1, 2025, while qualifying enterprise information technology equipment and software can remain exempt for certified facilities. Minnesota also created a category for large-scale data centers, with specific investment, facility, labor, and sustainability requirements.
The result is a reminder that the words “data center exemption” do not necessarily mean every input used by the facility is exempt.
Arizona moved in a different direction in 2026. Beginning July 1, 2026, the Arizona Commerce Authority entered a three-year moratorium during which it may not accept applications for new computer data centers seeking statutory tax relief. Existing approved projects require separate review, but a company considering a new Arizona project cannot assume the incentive program available to earlier projects remains open on the same terms.
Other states still illustrate how valuable properly structured incentives can be. Illinois provides sales and use tax exemptions for qualified tangible personal property used in the construction or operation of a qualifying data center that receives the required exemption certification. Ohio likewise provides a sales and use tax exemption for qualifying computer data center equipment when statutory investment and payroll requirements are met and the project receives approval from the Ohio Tax Credit Authority. These programs can materially affect project economics, but qualification, certification, and documentation are critical.
Nebraska adds another example of why companies need to monitor legislative changes even after a project is underway. Nebraska continues to list a sales tax exemption for certain tangible personal property acquired by data center operators, while 2026 legislation removed a separate data center personal property tax exemption effective January 1, 2027. Although sales tax and property tax are different regimes, changes to one incentive category can alter the overall economics of a project and should prompt a broader review of the incentive package.
For taxpayers, the practical challenge is not simply identifying whether a state advertises a data center incentive. Companies should determine exactly which purchases qualify, when certification must occur, whether contractors or tenants may use the exemption, whether electricity or other utilities are included, and what documentation must be provided to vendors. Timing also matters. Equipment ordered before certification, purchases made by the wrong legal entity, or invoices lacking required exemption documentation can create unexpected tax costs.
Companies should also revisit existing project models when legislation changes. A facility may have been approved based on assumptions regarding exempt electricity, servers, cooling equipment, construction materials, or replacement equipment. If those assumptions change, sales and use tax can become a significant operating or capital cost, particularly for projects involving hundreds of millions of dollars of investment.
The broader lesson from 2026 is that data center sales tax incentives remain valuable, but they are increasingly state-specific and politically fluid. Developers and operators should review incentive eligibility early in site selection, confirm the treatment of each major purchase category, and monitor legislative changes through construction and operations rather than relying on the rules that existed when the project was first modeled.
Need Help Navigating Multistate Incentives?
Source Advisors can help data center developers, operators, investors, and vendors evaluate multistate sales and use tax exemptions, model tax costs, document qualifying purchases, and adapt their compliance strategy as state incentive rules change.
Sources
- North Carolina Department of Revenue, “Important Notice: Repeal of Exemptions for Electricity Used at Datacenters.”
- Minnesota Department of Revenue, “Qualified Data Centers.”
- Arizona State Senate, 2026 Legislative Summary, Computer Data Centers Moratorium.
- Illinois General Assembly, 20 ILCS 605/605-1025, “Data Center Investment.”
- Ohio Revised Code § 122.175, “Tax exemption for sale, storage, use, or other consumption of computer data center equipment.”
- Nebraska Department of Revenue, “Nebraska Sales Tax Exemptions.”
- Nebraska Department of Revenue, “2026 Nebraska Legislative Changes.”
