Several states across the United States are reconsidering or withdrawing tax incentives for data center developments amid rising local opposition and political pressure. These incentives, which often include sales tax exemptions and property tax abatements, have been key to attracting data center projects that fuel the growing artificial intelligence (AI) industry.

Data centers are capital-intensive, with equipment such as computer chips and servers constituting a substantial portion of costs. Tax breaks on these purchases, typically amounting to 6% or 7%, can translate into significant savings, influencing decisions about where these centers are built. In addition to state-level incentives, many local governments have offered property tax abatements to lure data centers, viewing the facilities as potential long-term sources of revenue for public services like schools and police departments.

However, local resistance has mounted in several regions. Officials in states including Illinois, New Jersey, Washington, and Ohio have curtailed or proposed scaling back tax breaks. Cleveland council member Bill Rader, for example, has introduced new tax measures targeting data center developers to require higher payments for power and electrical infrastructure upgrades. In Independence, Missouri, council member John Perkins was voted out following his support for incentives worth billions of dollars. This pattern illustrates growing concern among local voters about the economic and environmental impacts of data centers, particularly regarding power consumption and infrastructure strain.

The industry and its advocates warn that reducing or eliminating these incentives could undermine state competitiveness and economic growth. Steve DelBianco, CEO of NetChoice, a tech industry trade group, described the backlash as fueled by misinformation, cautioning officials that the loss of incentives might deter future investments. Industry representatives also highlight that data centers contribute to local tax bases despite incentives, funding public services through other tax mechanisms. For instance, Amazon has invested nearly $40 billion in Ohio data centers since 2015, creating thousands of jobs and paying nearly $11 million in state property taxes and fees in the past year alone.

At the federal level, policies have recently reinforced data center economics. The 2025 tax law reinstated immediate deductions for equipment purchases that were previously depreciated, and the Opportunity Zone program is expected to offer enhanced tax benefits for investments in designated rural areas.

Despite the intensifying opposition, some industry experts view current resistance as temporary. Tom Boccaccio, an industry specialist, described the pushback as a “passing fad,” projecting that concerns around data center development will subside within a couple of years.

As vote counts and public opinion polls show widespread reluctance to host data centers nearby, the industry faces a shifting landscape. The recalibration of incentives across at least a dozen states signals a political reevaluation of data centers—from once-touted economic engines to potential liabilities ahead of November elections. Meanwhile, some states like Indiana, West Virginia, and Wyoming remain attractive destinations by maintaining favorable tax regimes, potentially reshaping the national distribution of data center investments.