Evolving The Edge: How States are Rewriting the Rules for Data Center Incentives in 2025

States That Are All In: Expanded Incentives for Strategic Growth

Several states doubled down on incentives in 2025, offering long-term tax relief and energy policy flexibility to attract large-scale projects:

Kansas: Launched a new 20-year sales tax exemption tied to investment, job creation, and infrastructure readiness. The policy sets a high bar—$250 million in capital and 20+ jobs—but signals that Kansas is ready to play in the hyperscale league.

Michigan: Extended its existing incentives all the way to 2050, and even 2065 for qualifying redevelopment sites. By tying benefits to brownfield and former power plant locations, the state is linking its economic and environmental strategies.

Colorado: Proposed significant tax rebates for data centers under its “Grid Modernization Act,” with a clear intent to align digital infrastructure growth with broader utility upgrades.

Mississippi: Advanced a bill offering 10-year renewable exemptions for centers making $100–250 million investments—setting the stage for new industry players in the Southeast.

Utah: Allowed large energy users to negotiate directly with suppliers, while also expanding tax exemptions for data center equipment. These changes support customized energy sourcing while lowering entry costs.

West Virginia: Created microgrid districts where zoning rules are relaxed, and power infrastructure is streamlined—an unusual but forward-thinking step for rural competitiveness.

States That Are Rethinking the Deal

Not every jurisdiction is expanding benefits. Some are imposing stricter guardrails—or questioning whether traditional incentive models still make sense.

Minnesota: Revamped its incentive structure by extending exemptions but eliminating relief on electricity use, adding steep annual fees, and enforcing wage and sustainability requirements. The message: benefits must come with accountability.

Georgia: Taking steps to ensure that grid costs tied to data centers are not shifted to everyday ratepayers. Even without new legislation, utility regulators are implementing rules that assign infrastructure costs directly to data centers.

Texas: Implemented a series of changes that will impact data center operations—from transmission fees to emergency shutoff mandates for large energy users. Meanwhile, tax valuation disputes are adding uncertainty at the local level.

South Carolina: Has not passed new incentive legislation this year but is clearly reevaluating its approach. With concerns over high energy use and limited job creation, the state is debating whether its current strategies still deliver long-term value.

California, Oregon, and Virginia: Home to many of the nation’s largest data center hubs, these states are adding new layers of regulation. From carbon neutrality goals and usage disclosures to specialized rate structures, these states are no longer prioritizing growth at all costs.

The Broader Trend: From Enticement to Engagement

The old model—offering simple tax breaks in return for capex—is being replaced by a more nuanced exchange.

States that still offer generous incentives are increasingly tying them to job thresholds, ESG outcomes, or infrastructure contributions. Those that are tightening policies are doing so not out of hostility to the industry, but in recognition of the resource strains and community concerns that unchecked expansion can bring.

What’s driving this shift?

• Massive energy demand: As AI drives exponential compute needs, data centers are straining local grids, prompting new questions about who pays for upgrades
• Minimal direct employment: Despite their economic footprint, many data centers create relatively few permanent jobs, leading communities to reassess the return on public investment
• Sustainability pressures: As climate policies evolve, states are under pressure to ensure large electricity users contribute to carbon goals—not undermine them

State Policy Snapshot: 2025 Incentive Trends

What It Means for Data Center Strategy

Incentive evaluation now demands more than a spreadsheet. Developers and operators need to:

• Understand the full regulatory landscape, not just the tax structure
• Model total grid exposure, including future fees, usage caps, or carbon penalties
• Engage communities and policymakers early, especially in states layering on social or environmental requirements
• Prioritize resilient, redevelopment-friendly sites, which increasingly align with legislative preferences

Incentives Aren’t Going Away—They Are evolving

2025 is proving to be a defining year in the evolution of data center policy. Where once the primary question was “What will it cost to build here?” the more relevant one today is “What does it take to stay here, sustainably and responsibly?”

States aren’t abandoning data center investment—but they are demanding more transparency, more accountability, and more meaningful returns. The winners in this new environment will be the operators who are ready to move from transactional to transformational partnerships with their host communities.

Navigating this complex and fast-changing landscape requires strategic insight, rigorous analysis, and deep local knowledge. DMA’s credits and incentives team, working in coordination with our property tax and sales and use tax experts, helps data center developers and tenants assess opportunities, mitigate risks, and unlock value in this evolving regulatory environment. From evaluating multi-state incentive structures to negotiating tax agreements and managing compliance, our specialists are here to guide you every step of the way.