North Carolina's sweeping tax exemptions for data centers would be fully repealed at the end of 2032 under a plan Gov. Josh Stein's office has been discussing with lawmakers in recent weeks.
The state offers broad exemptions to data centers that invest at least $75 million into their facilities over a five-year period. Such facilities are eligible for sales and use tax exemptions on their construction costs, the electricity they use, their HVAC equipment and all hardware and software, among other items. Local governments can offer incentives on top of that, including property tax exemptions.
Unlike most other states with data center tax exemptions, North Carolina's does not have a sunset date or a phase out period. Stein's proposal has four parts, eventually entirely rolling back the state's exemption package.
First, Stein is proposing ending the exemption on electricity at the end of this year. That would also be the deadline for data centers to apply for an exemption from North Carolina sales tax.
Any data center that applied this year would need to make the $75 million in investments on an accelerated timeline, reaching that benchmark by the end of 2028 instead of in the five-year period allowed under current law.
Stein, a Democrat, is ultimately proposing that all of data center sales exemptions should sunset at the end of 2032. By comparison, Georgia and South Carolina's exemptions are slated to expire in 2032, while Virginia's are currently set to expire in 2035.
It is unfair for taxpayers to be subsidizing data centers' energy use, Stein wrote in a statement.
"I’ve called on the legislature to be clear-eyed about the real cost of these tax breaks given to corporations, and I’m eager to work together to find the best path forward for our people. We can welcome innovation and give businesses certainty without requiring taxpayers to bankroll in perpetuity an industry with trillions of dollars already backing it," Stein wrote.
In recent months, Stein has called for the General Assembly to take action on the tax exemptions, noting that an estimated $45 to $57 million in taxes that are exempted now could escalate dramatically in coming years.
If all of the data centers proposed for North Carolina are built, a N.C. Department of Commerce found, the state would miss out on between $1.5 and $2.3 billion during construction, followed by about $450 million annually afterward.
Stein made his initial call for action on the exemptions during an April meeting of the N.C. Energy Policy Task Force, a group he set up to study how to address electricity affordability and the state's increased need for power.
Representatives from Amazon and other data center developers pushed back during that meeting, arguing that they have made or pledged to make billions of dollars of investments in North Carolina with the expectation that the current tax regime would be in place. Changing the exemptions could harm North Carolina's reputation, Rob Corradi, an Amazon government affairs official, told the task force.
Khara Boender, the director of state policy for the Data Center Coalition, an industry trade group, reiterated those concerns in a statement to N.C. Newsroom.
Pausing or eliminating the tax incentives would send the message that North Carolina is "closed for business," Boender wrote.
"The conversations happening currently are already creating significant uncertainty for the industry, with many planned developments trying to evaluate their ability to develop in the state now and in the future," Boender wrote, adding that changing the tax exemptions threatens all economic development, not just data centers.
Lawmakers' approach to exemptions
Spokespeople for Senate leader Phil Berger and Speaker of the House Destin Hall did not immediately reply to requests for comment on the proposal.
Legislative leaders have agreed to address at least part of North Carolina's data center tax incentives in the state budget, which is expected to be introduced later this month. As part of their agreement on high-level budget items, lawmakers plan to roll back the incentive on sales taxes for the electricity used by data centers.
Berger, R-Rockingham, has told reporters that he supports discussing additional rollbacks, saying the exemptions were intended to help boost an industry that is now seeing dramatic investment.
Hall, R-Caldwell, has gone a step further, saying that he thinks data centers "ought to pay the same tax as any other business that's beside of them."
Under a bill the N.C. House approved earlier this month, local governments would be barred from offering incentives to data centers.
Rep. Dean Arp, R-Union, helped write that bill. Arp previously said he was introducing the ban on local incentives because the impacts data centers can have on electricity rates aren't limited solely to the municipality offering the incentive. It is unclear if that legislation, Senate Bill 730, has support in the N.C. Senate.
Rep. Terry Brown, D-Mecklenburg, is one of the lawmakers who has been discussing the phase out of exemptions with Stein's team.
"While we're rolling out the welcome wagon, we want to make sure that we're not losing our shirt at the same time," Brown said.
Data centers have received significant scrutiny in most corners of North Carolina in recent months, but Charlotte has been one of the largest recent flashpoints. The city council there approved a 150-day moratorium on data center projects on June 8.
Of 38 states with some kind of tax exemptions for data centers, North Carolina is one of six that does not have a sunset date. Brown pointed to the sunset dates on exemptions in South Carolina and Virginia as an example North Carolina leaders could follow.
Time is of the essence, he said, with data center developers proposing large-scale projects across the state.
"We don't have to reinvent the wheel. We can take pieces of already existing policy and see what's worked in our neighboring states," Brown said.
