Washington $2 billion short and wants data centers to finally pay sales tax

Lawmakers target equipment upgrade exemptions

Washington state lawmakers want to stop giving data center owners a sales tax break when they replace equipment in buildings they already have.

Senate Bill 6231 passed the state Senate and now faces a tight deadline in the House. The bill would still let companies claim the tax break when they build new data centers.

It specifically goes after the “refurbishment” cycle, when companies swap out servers and power gear every three to five years.

The effort is part of a push to close a budget gap the governor’s office puts at roughly $2.3 billion.

New centers still qualify for the break

Right now, Washington gives data centers a sales and use tax exemption on equipment in both rural counties and big urban ones like King, Pierce, and Snohomish.

That covers servers, power systems, and even the labor to install them.

Under SB 6231, the state Department of Revenue would stop handing out exemption certificates for refurbishment projects.

But if a company wants to build, renovate, or expand a data center, the tax break would still apply.

The state expects millions in new revenue

The Department of Revenue estimates the change would bring in about $63 million in the current two-year budget period. That number jumps to roughly $144 million in the 2027-29 cycle.

To put that in context, the data center tax exemption cost Washington more than $117 million in 2023 alone, according to Department of Revenue data. Since 2018, the total cost has topped $474 million.

One company got most of the savings

A 2024 investigation found that more than 65% of the exemption savings since 2018 went to Microsoft.

In 2023 alone, Microsoft avoided paying close to $68 million in taxes for its Washington data centers, based on preliminary Department of Revenue figures.

Some companies reported zero employees in the state but still got the tax break.

The exemption has grown so large it now tops the combined total of all of Washington’s aerospace tax incentives, including those for Boeing.

The bill faces a tight deadline

SB 6231 passed the state Senate on Feb. 28 by a vote of 26 to 23. The bill now sits in the House Finance Committee, which held a public hearing on March 4.

An executive session is set for March 7. The full legislature must act before the session wraps up on March 12, so every day counts.

Sen. Noel Frame, a Seattle Democrat, sponsors the bill. The state’s Office of Financial Management requested it.

Supporters say big companies don’t need help

Gov. Bob Ferguson included the tax break cut in his supplemental budget proposal.

Groups that testified in favor of the bill ranged from the Washington State Community Action Partnership to the Sierra Club.

Supporters argue the refurbishment exemption mostly helps large, profitable companies that would upgrade their equipment no matter what.

The state also faces rising costs, shrinking revenue, and uncertainty around federal funding from the Trump administration.

Warnings at the Senate committee hearing

Data center companies, unions, and rural business groups pushed back at a Senate committee hearing. They warned that ending the break could send investment and jobs to other states.

Dan Diorio of the Data Center Coalition testified that companies typically replace data center equipment every three to five years, and dropping the exemption would discourage those upgrades.

Building trades unions back the current break because it requires community workforce agreements and prevailing wages on construction projects.

Job numbers tell different stories

The data center industry says it supported close to 9,000 direct jobs and 39,000 indirect jobs in Washington in 2023, according to an industry-funded report.

It also claims the sector brought in about $1.8 billion in state and local tax revenue.

But a 2017 state audit found data centers could meet minimum hiring rules by collectively employing as few as 260 workers. Washington has twice turned down proposals to make site-specific job numbers public.

A broader regulation bill already died

A separate, wider-reaching bill would have made data centers pay higher utility rates and report their water and energy use.

House Bill 2515 passed the House but died in the Senate Ways and Means Committee on March 3 after heavy lobbying from Microsoft, Amazon, and other tech companies.

That leaves SB 6231 as the only data center bill still alive this session. Supporters of HB 2515 said industry lobbying killed the measure.

The tax break started small and grew fast

Washington first offered data center tax breaks in 2010 to bring jobs to rural areas.

Lawmakers expanded them several times, including in 2022 when they added urban counties and pushed the expiration date to 2048.

A 2024 investigation found the program had drifted far from its original goal of rural job creation.

In early 2025, Gov. Ferguson signed an executive order creating a work group to study how data centers affect energy, taxes, and jobs.

Other states are rethinking these breaks too

Washington is not the only state taking a hard look at data center tax deals.

Virginia gave up about $1.6 billion in data center sales tax revenue last year, and its state Senate has proposed ending the exemption. Georgia expects to lose at least $2.5 billion this year.

Lawmakers in Maryland, Michigan, Arizona, and other states have also introduced bills to pull back or limit data center incentives. At least 37 states now offer some form of tax break to the industry.

The clock is ticking for this bill

The House Finance Committee’s executive session on March 7 will decide whether the bill moves to the full House. If it passes, it goes to the governor’s desk.

Ferguson has already signaled support by putting the measure in his own budget proposal. But the March 12 session deadline leaves almost no room for delays.

If the bill becomes law, the refurbishment exemption would end on July 1, 2026.

This article was created with AI assistance and human editing.

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