2026 Legislative Session Dates
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Key Takeaways:

  • Texas Governor Greg Abbott directed state regulators to ensure data centers pay for their own electric infrastructure costs and outlined 2027 legislative priorities including repealing sales tax exemptions for data centers, but stopped short of proposing a moratorium.
  • Arizona enacted a three-year pause on its data center sales tax exemption through June 2029, though Governor Katie Hobbs had initially sought to eliminate the exemption entirely.
  • Illinois Governor J.B. Pritzker paused data center tax incentives starting July 1st and encouraged lawmakers to adopt additional restrictions during the fall veto session, including residential ratepayer protections and water permitting requirements.
  • Virginia remains divided over its data center sales tax exemption, with the Senate now proposing an impact fee instead of eliminating the exemption, while the House has suggested a data center accountability study.


Recently, we wrote about how a few governors are beginning to institute restrictions on data centers, and in recent weeks, the trend has ramped up. In Texas, Governor Greg Abbott (R) sent a letter to state regulators directing them to take action to insulate consumers from costs associated with data centers and outlining his legislative priorities for 2027. In Arizona, lawmakers placed a pause on the state’s data center incentive at the urging of Governor Hobbs (D). And Illinois Governor Pritzker (D) paused the state’s data center credits in a move that mirrors Ohio Governor DeWine’s (R) recent actions. Not every governor is moving in the same direction though. In Virginia, Governor Spanberger has pushed back on legislative proposals to curtail the state's data center tax exemption.

How Are Texas, Arizona, Illinois, and Virginia Approaching Data Center Policy in 2026?

Texas: Legislative Priorities and Regulatory Directives

Governor Abbott recently sent a letter to state regulators directing them to take action to ensure that data center development does not increase residential electric bills. Specifically, he directed the Public Utility Commission of Texas (PUC) to take action to ensure that data centers pay for their electric infrastructure and interconnection costs to ensure residential ratepayers are not burdened by costs associated with powering data centers.

The Governor’s request to the PUC mirrored many of his legislative priorities for 2027 (the Texas legislature only meets on odd-numbered years and did not convene for regular session in 2026). These priorities are similar to data center legislation in other states, and include codifying into state law requirements for data centers to pay their own electric infrastructure costs, requiring new data centers to use water-efficient cooling systems, requiring data centers to add to the state’s electric capacity to avoid increasing demand on the energy grid, and establishing siting and setback requirements.

Governor Abbott also pledged to work with the legislature to “repeal sales tax exemptions and other outdated or unnecessary incentives for data centers.”

The Governor did not propose a data center moratorium. Texas has the second-highest concentration of data centers in the country, and the governor repeatedly emphasizes the need to encourage economic growth “without placing undue burdens on Texans and local communities.”

Arizona: Three-Year Moratorium on Data Center Tax Exemptions

In Arizona, Governor Katie Hobbs (D) recently approved a budget (AZ HB 4168/SB 1861) that includes a three-year moratorium on the state’s data center sales tax exemption. While the Governor celebrated the tax moratorium’s enactment, it is a step back from her initial request to eliminate the tax exemption entirely. The pause prohibits the Arizona Commerce Authority from accepting applications for the exemption from July 1, 2026, until June 30, 2029.


Defining Key Terms

Sales Tax Exemption

A sales tax exemption is a state tax incentive that allows qualifying businesses or purchases to avoid paying sales tax. For data centers, these exemptions typically apply to equipment, servers, cooling systems, and infrastructure purchases, reducing the upfront cost of building and operating facilities.

Moratorium

A moratorium is a temporary pause or suspension of an activity, policy, or program. In the context of data center policy, a moratorium typically means the state stops accepting new applications for tax incentives or exemptions for a specified period while policymakers evaluate the program's effectiveness and impacts.

Impact Fee

An impact fee is a charge imposed on new development to offset the costs that development creates for public infrastructure and services. For data centers, an impact fee would require operators to pay for the strain their facilities place on electric grids, water systems, roads, and other community resources.

Veto Session

A veto session is a brief legislative session held after the regular session ends, during which lawmakers can consider bills vetoed by the governor, address unfinished business, or take up new urgent matters. In Illinois, the fall veto session is scheduled for a few days in November and December.

Illinois: Pause on Data Center Tax Incentives and Future Policy Considerations

Illinois Governor Pritzker (D) has directed the Illinois Department of Commerce and Economic Opportunity to pause tax incentives for data centers beginning July 1st of this year. The Illinois legislature seriously considered a comprehensive bill on data centers this session, but was unable to reach a compromise.

In lieu of a comprehensive bill, some legislators sent the governor a letter encouraging him to pause incentives for data centers “until common sense guardrails are in place.” It seems not all legislators were on board; however, House Speaker Emanuel “Chris” Welch (D) told the media that the pause on data center credits didn’t have close to enough legislative support to pass a bill pausing data center incentives.

In the Governor’s announcement about a tax credit pause, the Governor also encouraged policymakers to take up further restrictions in the veto session, including residential ratepayer protections, demand response programs, behind the meter energy generation, water permitting, clean air standards, and community transparency and input. The fall veto session is currently scheduled for a few days in November and December.

Virginia: Ongoing Debate Over Sales Tax Exemptions and Impact Fees

Virginia lawmakers remain at an impasse over what to do about the state's data center sales tax exemption. The Senate originally proposed an end to the state’s data center sales tax exemption. In the months following, Senate President Lucas (D) and Governor Spanberger (D) have publicly clashed on the provision, with the Governor opposed to ending the exemption early. Now, the Senate has released a new Senate budget proposal to institute a data center impact fee in lieu of eliminating the sales tax exemption for data centers. The Governor has not publicly commented on the new proposal. Meanwhile, the House has signaled hesitancy toward the impact fee and proposed a data center accountability study instead. The House has not been called back to vote, leaving the competing proposals unresolved for now.

What’s Next for State Data Center Policy?

While many state legislatures have concluded their regular sessions for the year, data centers are likely to remain a focus during interim sessions this summer.


Track State Data Center Policy

Last year, states considered hundreds of data center bills, and we expect activity to continue growing in 2026. To stay on top of this rapidly evolving landscape, we've launched MultiState Policy Watch: Data Centers – a subscription featuring legislative analysis, trend summaries, and expert insights across energy, tax, water, zoning, and other policy areas impacting data centers. Sign up here.


Frequently Asked Questions

Which states have paused or restricted data center tax incentives in 2026?

Arizona, Illinois, and Ohio have paused data center tax incentives in 2026. Arizona enacted a three-year moratorium on its data center sales tax exemption through a budget that runs from July 1, 2026, until June 30, 2029. Illinois Governor Pritzker directed the state's Department of Commerce and Economic Opportunity to pause tax incentives beginning July 1, 2026, and Ohio Governor DeWine took similar action.

What is Governor Abbott requiring data centers to do in Texas?

Governor Abbott directed the Public Utility Commission of Texas to ensure data centers pay for their own electric infrastructure and interconnection costs so residential ratepayers are not burdened. His 2027 legislative priorities include requiring data centers to use water-efficient cooling systems, add to the state's electric capacity, meet siting and setback requirements, and repealing sales tax exemptions for data centers. He did not propose a data center moratorium.

What happened to Arizona's data center sales tax exemption under HB 4168?

Arizona's budget (HB 4168/SB 1861) includes a three-year moratorium on the state's data center sales tax exemption, prohibiting the Arizona Commerce Authority from accepting applications from July 1, 2026, until June 30, 2029. This represents a compromise from Governor Hobbs' initial request to eliminate the tax exemption entirely.

Is Virginia ending its data center sales tax exemption?

Virginia has not ended its data center sales tax exemption and remains at an impasse. The Senate released a new budget proposal to institute a data center impact fee instead of eliminating the sales tax exemption, while the House has proposed a data center accountability study instead. Governor Spanberger has publicly opposed ending the exemption early, and the House has not been called back to vote on competing proposals.

Why are governors restricting data center development now?

Governors in states like Texas, Arizona, and Illinois are taking actions such as pausing or restricting data center incentives due to concerns about the impact of data centers on residential electric bills, water usage for cooling systems, strain on energy grids, and the need for community transparency and input. Some governors have also proposed eliminating or pausing sales tax exemptions and other incentives for data centers.