The budget framework Speaker of the House Destin Hall and Senate leader Phil Berger agreed to earlier this week includes a rollback of the sales and use tax exemption for electricity purchased by data centers.
That's a rollback that could result in $20 million in additional tax revenue for North Carolina annually, if estimates the N.C. Department of Commerce made earlier this year using publicly available data about data centers are correct.
But the deal does not roll back all of the sales tax exemptions data centers currently receive, something that advocates, some government watchdogs and Democratic Governor Josh Stein have called for.
Under North Carolina law, data centers that invest at least $75 million over five years and provide health insurance to workers who meet county-level wage standards do not pay sales tax on things like their construction materials, their servers, their software, their cooling equipment or anything installed to generate power.
Hall has explicitly said in recent weeks that he believes data centers should pay the same taxes as other businesses, while Berger has told reporters he is interested in at minimum reviewing the exemptions.
In response to a question from the N.C. Newsroom this week about why the electricity exemption is the only one that would be rolled back as part of the budget conversation, Berger said, "You're going to hear me say this a bunch: It's what we were able to agree to."
Earlier, Berger had pointed to the rollback of the exemption as one of the ways that he saw North Carolina adding revenue to pay for raises for state employees and teachers. Berger had also said that he expects to see a better-than-expected revenue report in the coming days.
Asked whether he supports rolling back the full suite of tax exemptions for data centers, Berger doubled down on recent comments, saying, "I believe that the whole landscape of states trying to attract data centers with some of those kinds of incentives has changed significantly over the past couple of years, and I think it would do us well to review that. Whether we make changes or not is just subject to a review, but there are conversations that need to take place about that."
Data center industry officials contend that the exemptions are a key factor in industry siting decisions and also help encourage operators to replace servers and other materials more quickly than they might without the exemptions, enabling facilities to capture gains in computing power more quickly.
N.C. Department of Commerce officials estimate the value of the electricity exemption could rise to about $160 million annually if all of North Carolina's potential data center projects are built.
The equipment replacement exemptions could be worth between $25 million and $37 million now, Commerce officials estimate, potentially rising to $205 million to $308 million. And data centers could be exempt from paying between $1.5 billion and $2.3 billion in sales taxes on construction materials, Commerce reported.
North Carolina's House Republican Caucus broke the news about the chambers agreeing to roll back the electricity exemption in an infographic posted to X Tuesday evening.
It came hours after Berger and Hall held a press conference on short notice to say that they'd struck an agreement on high-level budget topics like repealing triggers to reduce the state's personal income tax in favor of a multi-year tax reduction scheme; pay raises for state employees and teachers; and a pair of constitutional amendments that if approved by voters would cap the rate at which local governments can increase property tax revenue and personal income tax.
Berger and Hall were clear: This is not a full budget agreement.
Budget writers from the two chambers started to meet this week to hash out granular details of the multi-hundred page spending plan.
Wednesday, Hall, like Berger, said that rolling the energy exemption back is where an exemption is possible right now. But he also indicated that further action on data centers is possible during the short session.
Hall said, "I expect we'll probably do some additional things on that, but nothing agreed to between the two chambers on that. But I know there's desire on both sides to make sure, as I've said before, that we're not unduly incentivizing something that we're getting a lot of anyway."
A bipartisan bill has been introduced in the N.C. House that would enact a complete repeal of tax exemptions for data centers. It has not yet been heard in committees.
