Data Centers and the Sales Tax Misnomer

In this episode of the GeTtin' SALTy podcast, host Nikki Dobay is joined by Jared Walczak, Senior Fellow at the Tax Foundation and founder of the Walczak Policy Consulting Group, for a focused discussion on the evolving state and local tax treatment of data centers. Jared explains how many states initially structured their favorable treatment of data center equipment as targeted incentives rather than incorporating that treatment into their existing business input exemption structure (i.e., manufacturing/machinery and equipment exemptions).  While the practical effect was largely the same at the time, this framing decision has created significant political and policy complications.  As state revenues have normalized and public sentiment toward data centers has grown more mixed in some communities, those incentives have come under increasing scrutiny -- with lawmakers questioning why the state is "giving away" revenue, a framing that would not arise if the exemption had been built into the standard sales tax framework from the outset. Nikki and Jared discuss the core policy argument: that data center equipment is a classic business input, no different in principle from manufacturing machinery and equipment, and that subjecting it to sales tax runs counter to the foundational design of a consumption-based tax.  They also address the economic stakes, including the capital-intensive nature of data center investment, the regular refresh cycles driven by AI and technological advancement, and the significant local tax revenues these facilities generate through real and personal property taxes. The episode closes with a look at the broader competitive landscape -- including the relevance of foreign VAT regimes -- and a reminder that the question for states is not whether data centers will be built, but where.