Virginia's data center study: tax breaks, jobs and power bills

Virginia's legislative research agency, JLARC, found that data centers bring large economic benefits, mostly during construction, while a state sales tax exemption cost about $928 million in the 2023 fiscal year and meeting unconstrained power demand could raise a typical Dominion Energy home bill by $14 to $37 a month by 2040.

JLARC describes Northern Virginia as the largest data center market in the world, so its findings matter well beyond the state. This post walks through what the study page says, explains the terms, and is careful about what the study does not say.

Key numbers at a glance

All figures below come from the JLARC page "Data Centers in Virginia" unless another source is named. The study was directed by the General Assembly in 2023, and the page shows a consultant review file dated 9 December 2024. The page does not state a single publication date, so figures should be read as of that period.

• Share of the market: Northern Virginia holds 13% of reported global data center operational capacity and 25% of capacity in the Americas.
• Demand history: Virginia's energy demand was roughly flat from 2006 to 2020.
• Demand outlook: a JLARC commissioned forecast shows unconstrained power demand would double within 10 years, with data centers as the main driver.
• Jobs: an estimated 74,000 jobs per year supported.
• Labor income: an estimated $5.5 billion per year.
• Gross domestic product: an estimated $9.1 billion per year.
• On site staffing: a typical 250,000 square foot data center has about 50 full time workers, roughly half of them contractors.
• Construction: 12 to 18 months per building, with up to about 1,500 workers on site at peak.
• Tax exemption savings: $928 million in fiscal year 2023, used by about 90% of the industry.
• Exemption expiry: scheduled for 2035.
• Local revenue: for five mature localities, data center revenue ranged from under 1% to 31% of total local revenue.
• Ratepayer risk: a typical Dominion residential customer could see generation and transmission costs rise by an estimated $14 to $37 per month by 2040, in constant dollars.
• National context: US data centers used about 4.4% of US electricity in 2023 and are projected at 6.7% to 12% in 2028 (US Department of Energy, summarising a Lawrence Berkeley National Laboratory report, 20 December 2024).

Why Virginia, and why it matters beyond Virginia

A data center market grows where several things line up: electric power, fibre connections, land, a tax regime that does not punish equipment purchases, and a cluster of other data centers that customers want to be near. Northern Virginia has had all of these for years. The JLARC page calls it the largest data center market in the world.

Size is also the reason Virginia is a useful case study. When a state has the most data centers, it sees the effects first: the benefits in jobs and tax revenue, and the costs in power demand, land use, noise and local opposition. Other states can read the Virginia findings as an early look at what may follow elsewhere, with the caveat that conditions differ. For a broader map of the main US hubs, see US AI data centre hubs and their grid limits.

What the study found on the economy

The JLARC page estimates that data centers support 74,000 jobs a year, $5.5 billion in labor income and $9.1 billion in GDP. Those are estimates of total effect, which includes direct jobs at the data centers and also indirect jobs at suppliers and induced jobs from workers spending their pay. The mix matters, because the number of people who actually work inside a data center is small.

The page makes this plain. A typical 250,000 square foot data center has about 50 full time workers, and roughly half are contractors. Construction is different: it takes 12 to 18 months per building and can employ up to about 1,500 workers on site at the peak. The page states that most of the economic benefit comes from construction, not from ongoing operations.

This is a useful point for anyone judging a local project. A data center can create a surge of building work followed by a small permanent workforce. Whether that is a good deal depends on what else the land could have hosted and on the tax revenue the project produces. The page is not an argument either way. It provides the numbers and lets readers judge.

What the study found on tax

The state sales tax exemption for data centers has been in place since 2010. According to the JLARC page, it saved the industry $928 million in fiscal year 2023, and about 90% of the industry uses it. It is scheduled to expire in 2035.

A sales and use tax is a tax on purchases. Data centers buy a great deal of equipment, mostly servers, networking gear and cooling systems, so an exemption from the sales tax on those purchases is worth a lot to the buyer. The state gives up revenue that it would otherwise collect, in the hope that the data centers locate in Virginia and generate other benefits.

The page adds a practical point about timing. Data center companies typically evaluate costs over 15 to 20 years, so any extension of the exemption would need to be enacted well before 2035, or companies will start to plan as if it will end. It also notes that a partial exemption could run until 2050. These are the study's observations about how the decision interacts with business planning, not a recommendation to extend or end the exemption.

Local governments see the money differently. The study found that for five mature localities, data center revenue ranged from under 1% to 31% of total local revenue. That wide range is a reminder that the average hides large differences: for one county the data centers may fund almost a third of local government, while for another they are a minor line. A community that depends on that revenue has a strong reason to keep the industry happy, and also a risk if the industry slows or moves.

What the study found on power

This is the part with the biggest consequences. The page says Virginia's energy demand was roughly flat from 2006 to 2020, then a JLARC commissioned forecast shows unconstrained power demand would double within 10 years, with data centers as the main driver. Unconstrained means the forecast assumes demand is met as requested, with no limits on how fast data centers can connect.

The page gives two illustrations of the supply effort needed. Meeting unconstrained demand would require new solar at twice the 2024 annual build rate. Meeting half of it would require about one 1,500 MW gas plant every two years for 15 years. A megawatt (MW) is a million watts, so a 1,500 MW plant is a very large facility. Those two examples are not a plan. They are a way to show how large the build would be.

The bill impact is the figure that gets most attention. The page says a typical Dominion Energy residential customer could see generation and transmission costs rise by an estimated $14 to $37 per month by 2040, in constant dollars. Constant dollars means the figure is adjusted for inflation, so it is a real increase, not just a rise in the price level. The range is wide because it depends on how much data center load arrives and how it is served. The study does not say that a bill will rise by that amount. It says it could, and gives the range as an estimate.

For comparison, the national picture is also one of rising use. The US Department of Energy, summarising a Lawrence Berkeley National Laboratory report announced on 20 December 2024, said data centers used about 4.4% of US electricity in 2023, rising from 58 TWh in 2014 to 176 TWh in 2023, and could reach 6.7% to 12% by 2028. A terawatt hour is a billion kilowatt hours. The width of that range reflects genuine uncertainty about how fast AI demand grows and how efficient the equipment becomes.

What the study recommended

The page lists six recommendations, five for the legislature and one for the executive branch. In plain terms:

• Clarify that utilities may delay, but not deny, service when added load cannot be supported.
• Direct Dominion Energy to plan for the risk of stranded infrastructure costs and file the plan with the State Corporation Commission. Stranded costs are costs of equipment built for a customer that then leaves or never arrives.
• Expressly authorize localities to require and consider water use estimates for proposed data centers.
• Expressly authorize localities to require sound modeling studies.
• Expressly authorize localities to set and enforce maximum sound levels for operating data centers, using low frequency metrics and zoning ordinances.
• Have the Virginia Economic Development Partnership clarify that Virginia Business Ready Sites Program grants can be used for potential data center sites.

Notice how many of these are about local control and cost risk, and how few are about stopping projects. The study is mainly about managing the effects. The recommendation on stranded costs is the same worry that Ohio addressed with a minimum payment rule; see how Ohio's AEP tariff works.

Environment and neighbours

The page gives some figures on emissions and location. In Northern Virginia, diesel backup generators make up under 4% of regional nitrogen oxide emissions and 0.1% or less of carbon monoxide and particulate matter. Nearly all data centers use Tier 2 generators, which run only in emergencies or for maintenance testing. About one third of data centers are near residential areas.

These numbers cut both ways. The emissions share is small, which supports the industry's point that backup generators are not a large source of regional pollution. The proximity figure explains why noise and land use are persistent local issues, and why the study recommended giving localities tools to measure and limit sound.

How to weigh the trade offs

The study is useful because it puts the benefits and the costs on the same page, and readers with different priorities can reach different conclusions from the same numbers.

Someone focused on public finance might start with the $928 million figure and ask what the state gets in return. The answer on the page is jobs, income and GDP, most of it from construction, and local revenue that is large for a few localities. Whether that justifies the exemption is a policy judgement, and the page does not make it.

Someone focused on household bills might start with the $14 to $37 range. A key question is who bears the cost of new generation and transmission. The recommendation that Dominion plan for stranded cost risk and file that plan with the State Corporation Commission points at the mechanism: if equipment is built for a customer that later leaves, the cost needs a clear owner.

Someone living near a site might start with the proximity figure, that about one third of data centers are near residential areas, and the recommendations on sound and water. Those are tools for local governments, not guarantees of any outcome.

A reader outside Virginia should also resist copying the numbers. Virginia has a long established cluster, a particular utility and a particular tax history. A state with a newer market, a different grid operator or a different tax structure could see very different results. What carries over is the set of questions: what does the state give up, what does it get, who pays for the power, and what can local governments control.

What is firm and what is uncertain

Firm, from the study page: the market share figures, the economic estimates, the $928 million saving in fiscal year 2023, the 2035 expiry, and the list of recommendations.

Estimates and projections: the 74,000 jobs, $5.5 billion and $9.1 billion figures are modelled totals. The doubling of demand is a forecast under an unconstrained assumption. The $14 to $37 monthly range is an estimate to 2040.

Not stated on the JLARC summary page: a single publication date, the share of Virginia's electricity that data centers use, the full methodology, and any later changes to Virginia law after the study. This post does not claim to know whether the General Assembly adopted the recommendations. Readers should check the current legislative record.

What to watch next

• Whether Virginia extends, reshapes or lets the sales tax exemption lapse, given the 2035 date and the planning horizon the study describes.
• How Dominion Energy and the State Corporation Commission handle the cost of serving very large loads.
• Local zoning actions on noise and water, which the study suggested localities be allowed to regulate.
• Grid operator data. The US Energy Information Administration reported on 15 October 2026 that PJM, ERCOT and SPP all set summer peak records in 2026, but its article attributed them to heat and did not mention data centers, so the link to data center growth should not be assumed from that source.

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Quick check

Sources

• Virginia JLARC, Data Centers in Virginia
• US Department of Energy, report on data center electricity demand, 20 December 2024
• US Energy Information Administration, peak load records, 15 October 2026

Last reviewed: 19 October 2026.