On June 22, the Virginia legislature approved its 2026 biennial budget, which includes a first-of-its-kind tax on electricity consumed by certain data centres.
The tax, established under HB 30, Item 3-5.24#1c, is set at a rate of $0.011 per kilowatt-hour consumed each month, beginning July 1, 2026.
The levy is designed as a temporary measure, with a built-in sunset clause that will terminate the tax on July 1, 2028, after a two-year period.
The definition of “data centre” for the purposes of this tax carves out facilities whose primary function is to provide internet access or communication services, strongly suggesting that AI data centres are the primary target.
The tax applies to both electricity supplied by a utility and to self-supplied electricity, with no exemption offered for renewable energy generated from wind or solar sources.
This absence of a green energy exemption has drawn scrutiny, given that one of the central criticisms of data centre expansion is the strain placed on the power grid and the emissions tied to fossil fuel generation.
Electricity supplied by a utility will be collected and remitted monthly by the provider, while operators using self-supplied power must remit the tax on a quarterly basis to the State Corporation Commission.
A notable feature of the legislation is a revenue cap: once aggregate tax receipts exceed $600 million in a fiscal year, any excess must be refunded on a pro-rata basis to data centres based on their share of total electricity consumption.
The inclusion of this refund mechanism, combined with the sunset clause, strongly indicates the tax is intended as a budget-balancing tool rather than a punitive measure aimed at discouraging data centre development.
The budget also includes an amendment requiring the Department of Environmental Quality to establish criteria for identifying “Cooling Water Scarcity Areas” no later than July 1, 2027, where water evaporation used for cooling could harm local water availability.
Data centres located within these designated scarcity areas will be required to use air cooling, closed loop systems, or more efficient cooling technologies to the maximum extent practicable.
New data centres in the Eastern Virginia Groundwater Management Area submitting a complete air permit application after January 1, 2027, must use air cooling, 100% recycled water or stormwater, or a closed loop cooling system.
By October 15, 2026, the Department of Environmental Quality must also deliver a study and plan for retrofitting existing data centres in the Eastern Virginia Groundwater Management Area to meet the same cooling standards.
Virginia’s approach diverges from the path taken by several other states, including Maine, which recently repealed its sales tax incentive for data centre equipment, and Ohio, Illinois, and Arizona, which have suspended theirs.
Analysts and legal observers suggest that other states may look to Virginia’s electricity consumption model as a template for generating revenue from the rapidly expanding data centre sector.