States Increasingly Pulling Rug Out From Under Big Tech With Tax Break Reversals

States that offered billions of dollars in tax breaks to lure data centers began to pull back the incentives as the artificial intelligence (AI) boom drove up costs and fueled opposition to the facilities.

More than ten states paused or canceled data-center tax exemptions, threatening benefits that helped Amazon, Meta and Google build facilities across the country, The Wall Street Journal reported. Communities raised concerns about data centers’ demands on electricity grids and water supplies and questioned whether taxpayers should subsidize the AI buildout.

Ohio lawmakers exempted computer servers and other data-center equipment from sales taxes more than a decade ago to attract technology investment. The incentive helped turn Ohio into a major data-center hub, but its cost reached more than $1.5 billion in 2025 — more than ten times the state’s original estimate, according to The Wall Street Journal. Republican Ohio Gov. Mike DeWine paused new applications for the exemption in May.

Illinois, New Jersey and Washington were the among states that moved to halt data-center tax breaks.

New Jersey made $500 million in tax credits available for data-center projects before lawmakers moved to eliminate the remaining $250 million in August just two years later, reflecting the change in public sentiment in a short period of time. The state already awarded $250 million to one project.

Virginia, the leading state for data centers, projected roughly $1.94 billion in lost sales-tax revenue from its data-center exemption for fiscal year 2025. More than 35 states offer sales-tax exemptions or similar benefits to data-center developers, The Wall Street Journal reported.

The incentives can influence where companies build because servers and other data-center equipment were exempt from sales taxes in many states, often in exchange for meeting investment or economic-development requirements. The equipment represents a large share of project costs and must be replaced regularly, making the tax treatment a significant factor in the cost of building and operating a data center.

Texas officials scrutinized a wave of proposed data-center projects amid concerns about the state’s power grid and local communities.

President Donald Trump urged communities to embrace data centers, arguing they could generate investments and wealth.

“If you want to get rich as a state or as a town and if you want to pay lower taxes, if you want to create tremendous wealth, if you want your house to be more valuable and everything else, you’re going to want a data center,” Trump said Friday.

Tech companies argued the facilities generate jobs, investment and tax revenue. Amazon said it invested $19.7 billion in Ohio AI and cloud infrastructure, supported more than 6,400 full-time equivalent jobs annually and paid $9.2 million in Ohio property taxes and fees in 2024.