States Claw Back Billions in Data Center Tax Breaks as Local Backlash Grows Nationwide

Ohio lawmakers exempted data center servers and equipment from sales tax more than a decade ago to lure tech investment. It worked. It also cost the state more than $1.5 billion in 2025, over 10 times what officials originally estimated, according to The Wall Street Journal. Republican Gov. Mike DeWine paused new applications for the exemption in May.

Ohio isn't unique. The Journal reports more than 10 states, including Illinois, New Jersey and Washington, have paused or canceled data center tax breaks as the AI buildout drove costs far past original projections. Virginia, which has more data centers than any other state, projected roughly $1.94 billion in lost sales tax revenue for fiscal year 2025 from its exemption alone, per the same reporting.

New Jersey's reversal shows how fast opinion turned. State senators approved $500 million in data center tax credits in 2024 with a unanimous vote. In August, the same chamber voted 35-4 to cancel the remaining $250 million, after already awarding $250 million to one project, according to the Journal and the Daily Signal.

More than 35 states still offer sales-tax exemptions or similar breaks to data center developers, per the Journal. But the math shifted after ChatGPT's 2022 launch triggered hundreds of billions in tech investment, making old exemptions worth far more than lawmakers ever anticipated. Ohio Democratic state Rep. Tristan Rader, who wants to repeal the exemption entirely and renegotiate deals with Amazon, Meta and Google, put it bluntly: "They seem to have more money than God and they're able to build without the need for these types of incentives."

An EY analysis of 15 states found Ohio's effective tax rate on data centers, incentives included, sat at just 1.2% at the end of 2025. California's was 16.9%, the highest in the analysis. Industry advisers, including Ian Boccaccio of tax firm Ryan, warn the reversals could push future projects toward Indiana, West Virginia and Wyoming, states still offering favorable treatment.

Towns Are Voting No, Not Just Complaining

The fight isn't only in statehouses. In Peculiar, Missouri, a town of 3,000, the Board of Aldermen voted unanimously in October 2024 to reject rezoning for a 500-acre data center campus after residents organized under the banner "Don't Dump Data on Peculiar," according to KCUR. In Festus, Missouri, residents ousted most of the city council's pro-data-center members this spring after opposing a proposed facility.

Gallup polling cited by KCUR found seven in 10 Americans oppose building an AI data center in their area. A separate Gallup figure cited by Fox News found 71% oppose a nearby data center compared to 53% who oppose a nearby nuclear plant. Jacob Montgomery, a political science professor at Washington University in St. Louis, told KCUR the opposition draws from different camps: "On the left, there's concerns about the environment, water, energy, climate. On the right, it's about property rights and local control and utility bills." A Politico survey found more Republicans shifted toward opposition between January and July, per KCUR.

In southwest Memphis, Tennessee, the Epoch Times reports residents of a historically Black neighborhood now live near Elon Musk's xAI supercomputing campus, known as Colossus, and say the environmental and power costs of the facility will land on their community. The Epoch Times argues states need enforceable mechanisms, like a separate utility rate class for large power users and automatic clawbacks if projected jobs don't materialize, pointing to North Carolina's VinFast plant, where a promised 7,500 jobs shrank to roughly 1,400.

One Fix on the Table: Pay Residents Directly

The Bitcoin Policy Institute, a Washington think tank, is pitching "data center dividends," returning a share of property tax revenue generated by data centers directly to households in host communities. Sam Lyman, the group's head of research, told Fox News Digital the payments could run between roughly $4,500 and $8,900 per household annually without new taxes or added developer costs. "It can't just be the developers in Silicon Valley who are becoming wealthy from this revolution," Lyman said.

The same report, cited by Fox News, ties part of the opposition to a network of groups, including the Party for Socialism and Liberation, the People's Forum, CodePink and BreakThrough News, that it links to Shanghai-based tech financier Neville Roy Singham. Former NSA cybersecurity director Rob Joyce told Fox News Digital such campaigns amount to "cognitive warfare" designed to make Americans argue for outcomes Beijing wants.

That funding claim, whatever its merit for specific advocacy groups, doesn't explain the votes in Peculiar or Festus, Missouri, or the objections raised by Memphis residents documented by the Epoch Times. Local opposition over water use, electric bills and property rights shows up consistently across red and blue communities alike.

President Trump has pushed back on the backlash directly. "If you want to get rich as a state or as a town... you're going to want a data center," he said Friday, according to the Daily Signal. Whether that argument moves voters in towns weighing moratoriums, or whether Congress or state legislatures adopt anything like the Bitcoin Policy Institute's dividend model, remains unresolved heading into the Nov. 3 midterms, where Patch reports the issue is already surfacing in town halls even though it rarely appears on an actual ballot line.