Over a decade ago, Ohio lawmakers exempted tech companies from sales taxes on computer servers and other equipment needed for data centers, betting that changes worth millions of dollars would lure much-needed investment to the state.
It worked, turning Ohio into one of the leading destinations for data centers. But then the artificial-intelligence boom supersized the tax exemption, pushing it to more than $1.5 billion last year, more than 10 times the original state estimate. Voter outrage after news outlet Signal Ohio reported the scale of the provision prompted Republican Gov. Mike DeWine to pause new applications for the sales-tax exemption in May.
Now, some state lawmakers, including Democratic Rep. Tristan Rader, want to repeal the sales-tax exemption and renegotiate past deals with companies such as Amazon.com, Meta Platforms and Alphabet's Google that secured exemptions for decades by signing contracts with the state. In several states, the exemptions for tech giants have exceeded $1 billion annually.
"They seem to have more money than God and they're able to build without the need for these types of incentives," said Rader, who is proposing new data-center taxes and requirements that developers pay more for power and electrical infrastructure. He represents parts of Cleveland, where locals have pushed back against the facilities, and he hopes the new threats force the companies to the negotiating table.
A similar dynamic is playing out across the country, as legislators or governors in more than 10 states, including Illinois, New Jersey and Washington, have slammed the brakes on the tax breaks. The reversals underscore how state leaders who once welcomed the facilities powering the AI boom as an economic engine suddenly treat them like a political liability.
Dozens of other states including Texas have proposed similar bills or steps, potentially costing the industry billions in tax benefits. That has the potential to push future projects to states such as Indiana, West Virginia and Wyoming that have retained favorable tax regimes, industry executives and advisers say. Industry advocates are telling state officials that other taxes they pay fund local schools and police departments and that eliminating incentives will force data centers to move elsewhere.
Amazon said it has invested nearly $40 billion in Ohio data centers since 2015, creating thousands of jobs, and paid almost $11 million in state property taxes and fees last year. Meta and Google declined to comment, as did DeWine's office.
A nationwide rebellion
The assault on tax provisions is the latest example of the nationwide rebellion against AI due to fears about power and water consumption, a dynamic that candidates are watching closely ahead of November's elections. A city council member in Independence, Mo., John Perkins, was recently voted out of office after he voted to approve billions in tax incentives for a data center.
"Our industry has been knocked on our backfoot," said Steve DelBianco, chief executive of NetChoice, a tech-industry group that fights regulation. DelBianco said that the backlash is based on misinformation and that he has warned state officials that eliminating incentives would hurt their economies.
President Trump has urged voters to welcome the facilities despite recent polls showing Americans overwhelmingly don't want data centers near them. "If you want to get rich as a state or as a town and if you want to pay lower taxes, if you want to create tremendous wealth, if you want your house to be more valuable and everything else, you're going to want a data center," he said Friday. "If you want to go through poverty, crime, and squalor, I would say don't approve data centers."
More than 35 states offer sales-tax exemptions or similar benefits to data-center developers. That sales-tax treatment is a crucial piece of financing because the computer chips and servers inside the facilities represent a significant chunk of the projects' costs, and because that equipment gets replaced every few years. Avoiding that tax, often 6% or 7%, on hundreds of millions or billions of dollars of equipment helps determine where a data center goes, industry executives say.
The exemptions are, in some respects, similar to the treatment of manufacturers' purchases on inputs to factories, which is designed to prevent cascading layers of the same tax on the same product.
Many of the data-center exemptions include specific job-creation and investment targets. Local governments have also offered property-tax abatements to attract the centers, which in the long run can generate revenue to fund schools and police departments.
Federal tax changes have also improved the economics of the data center build-out. Last year's Republican tax law brought back immediate deductions for equipment purchases that would otherwise be depreciated. And future centers may be able to use the Opportunity Zone program, which will soon offer enhanced tax breaks for certain rural investments.
Caught off guard
A decade ago, when states like Ohio passed the tax provisions, data centers were a fraction of their current size and used for powering websites and streaming services.
The state made itself unusually attractive. Including its incentives, Ohio's effective tax rate on data centers was 1.2% as of the end of 2025. That was the lowest of 15 states analyzed by the Quantitative Economics and Statistics team at accounting firm EY. California, at the other end of the scale, had an effective tax rate of 16.9%.
The frenzy following the launch of ChatGPT in late 2022 and hundreds of billions of dollars of tech investments made the exemptions much more lucrative. That caught many states off guard, prompting a quick backlash.
"It definitely happened in hyperspeed because of hyperscaling," said Tim Schram, who specializes in state and local taxes at accounting firm BDO.
New Jersey signed off on a half-billion-dollar tax credit for data centers in 2024 after a unanimous state Senate vote. Last month, the state canceled the remaining $250 million-after a 35-4 senate vote in the opposite direction.
Even states that are keeping their exemptions are taking steps to make tech companies pay more. Virginia, the state with the most data centers, recently passed a tax on electricity consumed by data-center operators while preserving its sales-tax exemption for equipment.
Ohio, Arizona and Illinois have become less attractive after pausing or axing exemptions, said Ian Boccaccio of tax firm Ryan. He said he was urging data-center clients to consider using other investment tax breaks offered by states for companies. In the long run, industry watchers said, the facilities offer too many benefits for governments to pass them up.
"This is a passing fad," Boccaccio said of the opposition, "and in two years we won't have these issues with data centers."
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