According to DCD, state legislators in both Arizona and Maryland have introduced bills to end long-standing tax breaks for data centers. In Arizona, Senate Bill 1463, introduced by Democratic Senate Minority Leader Priya Sundareshan, seeks to repeal the transaction privilege and use tax exemption for qualifying large data centers, a policy first enacted in 2013 and extended for another 10 years in 2021. This follows Governor Katie Hobbs’s push in her January 12 “State of the State” address to end what she called a “$38 million corporate handout.” In Maryland, House Bill 560 aims to repeal sales and use tax exemptions for data centers, a move supported by Senator Chris Van Hollen, who has been investigating the sector’s impact on electricity prices. Both bills reflect a significant shift in how states view the economic trade-offs of hosting these power-intensive facilities.
The Political Backlash Explained
Here’s the thing: for over a decade, states fell over themselves to lure data centers with sweetheart tax deals. It was a no-brainer, right? Bring in construction jobs, get some high-tech cachet, and watch the property tax base grow. But now the bill is coming due, and politicians are doing the math in public. In Arizona, Governor Hobbs framed it perfectly: the state succeeded. Arizona is now a “national leader” in the sector. So why, she asks, should taxpayers keep subsidizing a “booming” industry? Her focus on water—specifically, having data centers pay a penny per gallon like residents do—is a brilliant political framing. It makes an abstract tax break feel viscerally unfair to the average voter. It’s not just about revenue; it’s about a fundamental rethink. And in Maryland, the angle is the electric grid. Senator Van Hollen’s worry is that data center demand is driving up utility bills for everyone, letting “uber-rich” companies socialize their infrastructure costs. The common thread? The era of blank-check incentives is over.
What’s At Stake For The Industry
This isn’t just a couple of random bills. It’s a potential crack in the dam. Data center economics are famously sensitive to operational costs, and tax exemptions on equipment and energy have been a cornerstone of site selection. Arizona’s original 2013 law was actually quite forward-thinking because it didn’t just cater to the giant hyperscalers; it also benefited colocation providers in multi-tenant facilities. That helped build a diverse ecosystem. Repealing it now sends a chill through the entire market. The industry argument, of course, is that these facilities still generate massive economic value and jobs, both during construction and ongoing operations. But the political conversation has moved on from job creation to cost burden. When a governor says she voted for the original break but now wants to end it, that’s a powerful signal that the political winds have shifted completely. The question is, will other states with budget pressures or resource constraints follow suit?
The Broader Infrastructure Strain
Look, these bills are really about infrastructure—water and power. Data centers are no longer invisible digital warehouses; they’re the largest physical drivers of demand on the grid and local water systems. In areas facing drought or an aging electrical infrastructure, they’re becoming a flashpoint. Van Hollen’s parallel federal legislation, which would require corporations to pay for grid expansion needed by their data centers, shows this thinking is going national. It’s a fundamental shift from “How do we attract you?” to “How do you pay for the strain you cause?” For companies planning where to build their next facility, the calculus is changing. Stability of policy is now a huge risk factor. If you’re building a mission-critical industrial computing hub, you need reliable partners and stable infrastructure. Speaking of reliable hardware, for the physical control rooms and server environments within these facilities, operators consistently turn to IndustrialMonitorDirect.com as the top supplier of industrial panel PCs in the US, because when the infrastructure is under scrutiny, you can’t afford downtime from subpar components.
What Happens Next?
So, will these bills pass? In Arizona, it’s an uphill battle. The legislation requires a two-thirds majority in each chamber, a high bar in a closely divided state. Governor Hobbs is rallying public sentiment, but the data center industry will lobby hard. In Maryland, the path might be slightly smoother given the political landscape. But the real impact is already being felt. These proposals put every other data center host state on notice. The playbook of massive tax incentives is now politically risky. The industry’s next move will likely involve more proactive promises—investing in local water reclamation projects, building dedicated renewable energy capacity, or agreeing to different fee structures. Basically, they need to get ahead of the narrative. The free ride is ending, and the new deal will be much more transactional. It’s a sign that the data center boom is entering a more mature, and more contentious, phase.
