What is Virginia's data center electricity tax? Virginia's data center electricity tax is a $0.011 per kilowatt-hour levy on all electricity consumed by data centers in the Commonwealth, signed into law on June 30, 2026 and effective July 1, 2026. It is the first per-kilowatt-hour tax on AI compute in United States history, and it lands in the largest data center market in the world. For commercial real estate investors, it marks a turn from the incentive era to a taxation era, and it changes how data center deals underwrite. For the broader toolkit, see our guide to the best AI tools for commercial real estate investors.
Key Takeaways
- Virginia's tax is $0.011 per kilowatt-hour on all data center electricity, effective July 1, 2026, the first per-kilowatt-hour AI compute levy in the United States.
- A continuously operating 500 MW facility would owe roughly $48 million per year, about a 10 percent increase in effective electricity rates.
- The tax is estimated at $600 million per year for the general fund, refunds excess above that cap to operators, and sunsets on July 1, 2028.
- It applies to utility, competitive retail, and self-generated behind-the-meter power, so on-site generation does not avoid it.
- More than 25 states are advancing data center legislation, so investors should model policy risk into every market, not just Virginia.
What Virginia Actually Passed
Virginia enacted the tax inside its 2026 biennial budget, which Governor Abigail Spanberger signed on June 30, 2026, one day before the July 1 effective date. The measure sets a consumption tax of $0.011 per kilowatt-hour on all electricity used by data centers, defined broadly as facilities supporting at least one megawatt of electrical capacity. Crucially, it applies to electricity from utilities, from competitive retail providers, and from self-generated sources including behind-the-meter generation, so building your own power on site does not sidestep it.
The structure has three features investors should note. Legislative documents estimate about $600 million per year for the general fund, and any collections above that cap go into a special fund and are refunded to operators in proportion to what they paid. The tax is remitted to the State Corporation Commission rather than the tax department, with the first returns due in September 2026. And it sunsets on July 1, 2028, making it a two-year measure unless extended. Virginia also preserved its existing sales and use tax exemption on data center equipment, so this is an addition, not a swap.
The Math That Changes Underwriting
The tax is small per unit but large at scale, and that is the point for underwriting. At $0.011 per kilowatt-hour, a continuously operating 500 MW facility would owe roughly $48 million per year, according to figures cited by Data Center Knowledge. Rob Gramlich of Grid Strategies estimated the levy at a little more than a 10 percent increase in effective electricity rates for data centers.
Data center deals are increasingly underwritten in dollars per kilowatt per month, and power is the dominant operating cost. A 10 percent increase in effective power rates flows straight through to operating expenses and net operating income, which is gross revenue minus operating expenses before debt service. Where a lease passes energy costs to a hyperscaler tenant, the tax pressures the tenant's total cost of occupancy and, over time, the rent it will pay. Either way, the number belongs in the pro forma now, and The AI Consulting Network helps investors build that line into a full underwriting model. Our guide to AI data center electricity costs and NOI shows how to model that line.
Site Selection Just Got More Complicated
The tax adds a new variable to site selection at a moment when power access was already the binding constraint. Northern Virginia, known as Data Center Alley, hosts a large share of the world's internet traffic, and its cluster of land, fiber, and power is hard to replicate. The new tax does not erase that advantage, but it narrows the gap against competing markets and raises the value of tax durability as a selection criterion.
It also fits a national pattern. More than 25 states are advancing data center legislation, shifting from attraction to cost accountability. Georgia moved to repeal data center tax credits, Oklahoma placed a moratorium on very large loads pending study, and Maine trimmed incentives. Texas has pursued grid and large-load rules rather than a consumption tax, an approach we covered in our guide to the Texas data center grid and land rule. For investors, the lesson is that policy risk is now a first-class underwriting factor across every market.
The Refund Mechanism and the Bigger Who-Pays Shift
Two design details tell investors where this is heading. First, the refund mechanism caps the state's take: collections above the roughly $600 million annual estimate go into a special fund and return to operators in proportion to what they paid, which frames the measure as a revenue target rather than an open-ended levy. Second, the tax rides alongside a broader who-pays shift in how grids charge very large users. Virginia's GS-5 tariff already requires large loads to carry a heavy share of transmission capacity costs during ramp-up, a move toward strict cost causation that spreads the true cost of new demand onto the data centers driving it.
For CRE investors, the signal is that the era of unconditional data center incentives is closing. Whether the mechanism is a consumption tax, a special rate class, a moratorium, or a repealed credit, states are asking data centers to pay more of their own way. Underwriting that assumes yesterday's incentive environment will overstate returns, so the durable models now carry an explicit line for policy and rate risk.
What CRE Investors Should Do Now
The practical response is to price the policy and diversify the exposure. Add the electricity tax to Virginia pro formas at the current rate, and model the sunset in 2028 as a scenario rather than an assumption, since a two-year measure can be extended or expanded. Compare after-tax returns across markets rather than headline rents, because a lower-tax market may now clear a similar return with less policy risk. And watch adjacent measures, since a property-tax reassessment can compound with an energy tax; our guide to data center property tax overvaluation covers that separate risk.
AI tools make this tractable. A language model can read a bill, extract the rate, base, and effective dates, and turn them into a pro forma adjustment across a portfolio of markets in minutes. For investors who want that modeling built to their own assumptions, Avi Hacker, J.D. and The AI Consulting Network help CRE teams turn fast-moving policy into underwriting they can act on.
Frequently Asked Questions
Q: How much is Virginia's data center electricity tax?
A: It is $0.011 per kilowatt-hour on all electricity consumed by data centers, effective July 1, 2026. For a continuously operating 500 MW facility, that is roughly $48 million per year, about a 10 percent increase in effective electricity rates.
Q: Does building on-site power avoid the tax?
A: No. The tax applies to electricity from utilities, competitive retail providers, and self-generated sources, including behind-the-meter generation. On-site power does not exempt a facility from the levy.
Q: Is the tax permanent?
A: Not as written. It sunsets on July 1, 2028, making it a two-year measure. Investors should treat continuation or expansion as a scenario, because energy taxes on data centers are gaining traction in many states.
Q: Why does this matter for commercial real estate investors specifically?
A: Power is the dominant operating cost in a data center, and deals are underwritten in dollars per kilowatt per month. A roughly 10 percent rise in effective power rates flows into operating expenses, net operating income, and ultimately valuation and site selection.