Georgia Legislature Suspends Tax Exemption for Data Centers

Pushback is growing to the rapid expansion of data center footprints that are beginning to outpace the capacity of utilities to provide the huge amount of electricity needed to support data processing for generative AI.

The state legislature in Georgia has passed a bill suspending the state’s sales tax exemption for data centers for two years. The bill establishes a state commission that will examine the impact of data centers on Georgia’s state power grid during the hiatus for the incentive.

According to the bill, sales tax certificates of exemption will be issued for data center contracts entered into before July 1. The pause in the tax breaks will run from July 1, 2024 to June 30, 2026.

The bill creates a Special Commission on Data Center Energy Planning, which is tasked with reviewing the existing grid and making recommendations about the expansion of grid capacity and transmission infrastructure needed for new data centers and where these data hubs should be located.

The commission has been given a June 2026 deadline to report its findings. During its review, the tax breaks Georgia established for data centers in 2018—which were supposed to stay in place until 2033—will be suspended.

In a reflection of how important data centers have become as driver of economic development, the bill, which needed 29 votes to clear the 56-member Georgia Senate, was passed in the chamber in a 29-22 vote, with five members absent.

Rapid expansion of data centers has made Atlanta the eighth-largest data hub in North American, according to JLL’s latest data center market report. Atlanta also has one of most active data center pipelines, with more than 600 MW of capacity under construction.

Executives from Georgia Power, the state’s largest utility, recently told the state’s Public Service Commission (PSC) that 80% of the additional electrical generating power the utility is seeking from the PSC will be consumed by data centers, according to a report in Capitol Beat.

Large data center campuses are huge capital expenditures that are prime targets of economic development agencies offering generous incentives, but proponents of the incentives pause in Georgia said that the big server farms do not create a lot of permanent jobs once construction is completed.

“These do not create jobs. They create big buildings, but they do not create jobs,” Sen. John Albers, who represents Roswell, said during the floor debate on the bill, Capitol Beat reported.

Supporters of the incentives pause also cited a 2022 state audit that found the data center tax incentive was only returning 24 cents on the dollar.

The demand for electricity from data centers is projected to consume nearly 10% of the nation’s electricity before the end of this decade.

There were about 2,700 data centers in the U.S. in 2022, consuming an estimated 4% of the nation’s power output. In 2024, the total number of data hubs has grown to nearly 5,400, with power needs expanding from an estimated 16 gigawatts in 2022—a gigawatt is equivalent to the power output of a large nuclear power plant—to more than 21 gigawatts this year, according to a McKinsey study.

By the end of this decade, McKinsey projects that data centers will consume more than 32 gigawatts of electricity, according to a report in the Washington Post.