Ohio has bipartisan models for changing course on data center tax breaks

Ohio needs to curb the data-center tax break that cost $2 billion in state and local revenue last year. If the billions being given out to Amazon, Google, Meta and others can’t be easily reined in, legislators should approve other taxes to fill in for some of the losses.

Recent action in other states shows that it can be done – and that this is not a partisan issue.

In Virginia, home to the nation’s largest number of data centers, the Democratic-majority legislature approved a tax on data center electricity use that is set to raise up to $600 million a year in revenue. In Texas, the second largest in data centers, Governor Greg Abbott, a Republican, has called for a repeal of the state’s data center sales-tax exemption.

That’s just the beginning of action to slash or pause these tax breaks that benefit some of the world’s wealthiest companies. In Pennsylvania, where legislative control is split, both the Senate and House have separately approved repeal of the exemption, with large majorities in both chambers.

In Illinois, Governor J.B. Pritzker, a Democrat, has approved a two-year moratorium on the tax break, while in Arizona, the Republican legislature and Democratic governor approved a three-year pause as part of its state budget. A bill New York approved with a one-year moratorium on hyperscale data center development is now awaiting action from the governor.

Other states, from Massachusetts to Oklahoma, are taking steps to pause or limit the tax break.

In state after state, the data center industry and its defenders have argued that ending or reducing the exemption will hurt the business climate and mean the state is “not open for business.”

But now, with states all over the country cutting back on the exemption – including most of those that have the largest concentration of data centers – the fallacy of this has been exposed.

Even Lydia Mihalik, Ohio’s development director, said of the exemption: “I don’t think it’s as much of a deciding factor going forward.”   

Ohio’s General Assembly voted a year ago to repeal the tax break, although this repeal would only cover new agreements. Importantly, that leaves existing tax breaks for big data center operators undisturbed, even for new facilities they build.

News that the tax break was costing a fortune prompted Governor Mike DeWine, who had previously vetoed the repeal, to put a temporary pause on such new approvals. But before breaking for the summer, the General Assembly failed to pass a data center bill that would have limited – weakly – the break to 50% for new agreements. Some legislators thought that didn’t go far enough.

They’re right. It didn’t.

Like people across the country, Ohioans aren’t crazy about the noise, pollution, water and electricity use the data center boom is bringing to their communities, and especially the secretive process that often accompanies their development. More guardrails for them are badly needed. Providing giant tax incentives for largely unregulated projects that most people don’t want is not just bad policy — it’s a huge waste of precious resources.

If Ohio can’t find a way to end these outlandish breaks, it should follow Virginia’s example, and approve a data-center tax to make up the revenue. One such tax would be a tax on data center equipment. The Ohio General Assembly should come back from its break and deal with this issue.