Virginia Budget Creates New Electricity Consumption Tax for Data Centers

Summary — Virginia’s 2026 budget preserves the Commonwealth’s sales and use tax exemption for qualifying data center equipment while creating a new electricity consumption tax of $0.011 per kWh, effective July 1, 2026. The new tax applies to both utility-supplied and qualifying self-generated electricity and includes an annual revenue cap with refunds if collections exceed $600 million. Data center owners, operators, and customers should evaluate how the new tax may affect operating costs, contracts, and future expansion plans as additional implementation guidance is released.

On June 30, 2026, Virginia Governor Abigail Spanberger signed the Commonwealth’s 2026 biennial budget bill into law.[1] The budget establishes a Data Center Electricity Consumption Tax beginning July 1, 2026, while preserving Virginia’s existing sales and use tax exemption for qualifying data center equipment.[2]

The legislation resolves one of the most closely watched issues during Virginia’s budget negotiations. Earlier proposals would have repealed the Commonwealth’s sales and use tax exemption for qualifying data center equipment. Instead, lawmakers retained the exemption while adopting a new electricity consumption tax designed to generate additional revenue from one of Virginia’s fastest-growing industries.

The New Data Center Electricity Consumption Tax

Beginning July 1, 2026, each “data center operator” must pay an electricity consumption tax of $0.011 per kWh of electricity consumed at each Virginia data center each month.[3]

The legislation broadly defines a “data center” as a facility primarily engaged in the storage, management, and processing of digital data.[4] The definition encompasses computer systems, networking equipment, electrical infrastructure, cooling systems, environmental controls, fire suppression systems, and related equipment supporting at least one megawatt of electrical capacity.[5] The definition excludes facilities whose primary function is providing internet access service, communications service under Virginia Code § 58.1-647, or both.[6]

A “data center operator” includes any person that:

• owns, operates, or occupies a Virginia data center; or
• owns or operates a Virginia data center using self-supplied electricity generation.

Where multiple parties qualify as data center operators with respect to a single facility, the person responsible for payment of the electric utility account for the applicable service point is liable for the tax on electricity delivered through that account, and the person responsible for self-supplied generation is liable for the tax on self-supplied electricity.[7]

Revenue Cap and Refund Mechanism

The legislation establishes a dedicated fund for tax collections. Beginning in every fiscal year on and after July 1, 2027, the Virginia State Corporation Commission (the “Commission”) will refund any collections exceeding $600 million (less any costs incurred by the Commission to administer the tax) on a pro rata basis based on each operator’s share of taxes paid during the applicable fiscal year.[8] Consequently, although operators must initially remit the tax, their ultimate tax liability may be reduced if statewide collections exceed the statutory cap. Refunds to operators paying through an electric utility or competitive service provider will be credited to the operator’s account by the utility or provider; refunds for self-supplied electricity will be paid directly by the Commission.[9] No interest is payable on any refunds.

Implementation Guidelines and Administration

The Commission is directed to issue implementation guidelines within 60 days after enactment.[10]

Although the tax becomes effective July 1, 2026, the first collection will occur in September 2026. The payment due for the first collection will include all taxes owed for the period from July 1, 2026, through September 1, 2026.[11]

Considerations for Data Center Owners, Operators and Customers

Data center owners, operators and customers should consider:

• identifying which party is responsible for payment under existing utility arrangements;
• reviewing customer agreements to determine whether the tax is appropriately allocated;
• evaluating the effect on operating costs, pricing, and project economics;
• monitoring forthcoming Commission guidance regarding reporting, payment, and refunds; and
• considering how the new tax affects existing Virginia incentives and broader tax planning.

The legislation is particularly significant because Virginia remains the nation's largest data center market. While lawmakers ultimately preserved the Commonwealth’s sales and use tax exemption, the new electricity consumption tax introduces a material operating cost that may affect future expansion decisions, energy procurement strategies, customer contract negotiations, and overall project economics.

What Happens Next

The Commission is expected to issue implementation guidance within 60 days of enactment addressing reporting, payment, and refund procedures. Data center operators should review that guidance carefully as it may clarify the treatment of self-generated electricity, reporting obligations, and refund administration.

For more information concerning the new data center electricity consumption tax, please contact Brad Nowak, co-chair of the firm’s Data Center Practice, or any member of the Williams Mullen Data Center Practice.