This article is for informational purposes only and does not constitute tax, legal, or accounting advice. Consult a qualified tax professional before making compliance decisions.

Policy

The Tax Moved Upstream: Virginia's Data Center Power Tax and the New Cost of Agent Compute

Beardsley Rumble|2026-07-25|6 min read

On July 1, 2026, Virginia became the first state to impose a direct tax on the electricity a data center consumes: $0.011 per kilowatt hour, enacted in the biennial budget Governor Spanberger signed on June 30. It did not arrive alone. The same date saw Arizona freeze new data center exemption applications, Illinois stop processing new incentive agreements, Washington strip repair-and-refurbishment exemptions, and North Carolina repeal its exemption for data center electricity purchases outright.

Everything we usually write about here sits on the output side of an agent's ledger — whether the agent's sale is taxable, which state gets to source it, who collects. This wave sits on the input side, and it behaves differently enough that it deserves separate treatment. For the output-side picture, our AI agent sales tax hub and its 50-state guide remain the reference. This post is about the other half of the ledger.

What Virginia Actually Enacted

The Data Center Electricity Consumption Tax was created not by a standalone bill but through H.B. 30, the FY 2027–FY 2028 biennial budget (2026 Special Session I), signed June 30, 2026 and effective July 1, 2026. The mechanics matter more than the headline:

Rate: $0.011 per kWh consumed each month.

Scope: Facilities primarily engaged in the storage, management, and processing of digital data, with supporting computing, networking, electrical, and cooling infrastructure, at at least one megawatt of electrical capacity. Sub-megawatt facilities fall outside the definition.

Liability: The person responsible for the electric utility account at each service point is liable for delivered electricity. Where a facility self-supplies generation, the party responsible for that generation is liable for it. Utilities and competitive service providers collect and remit on operators' behalf; self-supplied electricity is remitted directly.

Revenue cap: Beginning July 1, 2027, annual collections above $600 million, net of administrative costs, are refunded to operators pro rata based on their share of tax paid that fiscal year.

Sunset: June 30, 2028, absent legislative extension.

Notably, Virginia retained its sales and use tax exemption for qualifying data center equipment. The consumption tax was the compromise that preserved it. That is the trade the General Assembly made: keep the capital-side exemption, tax the operating draw.

The Rest of the July 1 Wave

Virginia is the novel instrument, but the direction is uniform across states that spent 2026 reconsidering what data centers cost their ratepayers.

Arizona folded a three-year moratorium into its budget: the Arizona Commerce Authority cannot accept new transaction privilege and use tax exemption applications from July 1, 2026 through June 30, 2029. The two weeks before the cutoff produced a filing rush that is instructive on its own — reporting indicates the ACA received 113 applications between June 15 and June 30, against roughly 123 in the program's prior thirteen years, with a 60-day review clock on each. The moratorium is prospective; the pipeline it created is not.

Illinois took the executive route. Governor Pritzker directed the Department of Commerce and Economic Opportunity to pause processing of new Data Center Investment Program applications effective July 1, 2026, a two-year suspension announced after the legislature adjourned without acting. Agreements already in place, and applications submitted before July 1, are honored. He has asked lawmakers to build a durable framework in the fall veto session.

Washington, under S.B. 6231, ended the sales tax exemption for data center equipment repairs and refurbishment — including associated labor — as of July 1, 2026, exposing those costs to the 6.5% state rate for both rural and nonrural facilities.

North Carolina's budget repealed the sales and use tax exemption for electricity purchased by qualifying data centers, which the legislature's fiscal analysis scores at roughly $21.4 million in FY 2026–27, rising toward $28.6 million by FY 2030–31. Equipment and capital-investment exemptions were left in place.

Ohio and Utah governors moved in the same direction earlier in the year. More than thirty states filed data-center-related bills in 2026.

Why This Class of Tax Behaves Differently

Three features separate an input-side infrastructure tax from the sales and use taxes agent operators are learning to manage.

It is not recoverable, and there is no certificate for it. A resale certificate works because the tax is meant to land on the final consumer; the intermediate seller is a conduit. Virginia's kWh tax has no such architecture. It is a consumption levy on the operator of a facility, and an AI agent operator renting capacity in that facility does not hold the utility account, cannot present an exemption certificate, and has no statutory mechanism to push the cost forward as tax. It arrives as a price.

It is therefore invisible on your invoice. You will not see a Virginia line item. You will see cloud or colocation pricing that moves, if it moves at all, with a lag and without attribution. This is the practical hazard: a cost that behaves like tax but presents as vendor pricing gets booked as cost of goods, which is correct, and then gets forgotten, which is not — because it is the one tax exposure in an agent's stack that no compliance engine will flag, since it never touches the agent's own transaction.

It sits below the taxes that are coming. Consider the sequence starting January 1, 2027, when California's S.B. 122 and Colorado's HB 26-1223 both make remotely accessed software taxable. An agent operator's compute cost now contains Virginia's per-kWh tax; that cost is embedded in the subscription or per-call price of the agent service; and that price becomes the measure of a sales tax the customer pays. Economically, this is tax pyramiding across layers rather than across agents — the same compounding we watch in multi-tier agent pipelines, arriving from underneath. We flag it as an economic observation, not a legal conclusion: no state has spoken to whether an embedded infrastructure levy should be excluded from the taxable measure of a downstream digital-product sale, and we will not characterize that question as resolved while it remains untouched.

There is one circumstance where this stops being someone else's tax and becomes your filing. If you hold capacity in Virginia in your own name — a metered service point at a colocation facility, or self-supplied generation for an owned deployment at one megawatt or more — the liability provisions attach to the account holder and the self-supplier, not to the landlord. Whether a given arrangement puts you in that position is a facts-and-circumstances question that turns on how the service points and accounts are actually papered, and it is worth asking your provider rather than assuming.

What Agent Operators Should Do

Ask, in writing, whether your provider's pricing absorbs or passes through these measures, and get the answer before your next renewal rather than after. Virginia, Washington, and North Carolina all changed operator economics on the same date.

Identify the account holder of record at every service point you touch in Virginia. If it is your entity, or if you self-supply at 1 MW or more, treat it as a direct compliance item, not a vendor cost.

Be careful with region-shifting as a tax lever. Moving workloads to a cheaper jurisdiction is a real input-cost decision, but it can also change where your software is arguably used — which is precisely the unresolved question we examined in California's sourcing and place-of-use rulemaking. Optimizing the input tax should not quietly rewrite your output-side sourcing story.

Book these as cost, not as a recoverable tax receivable. There is no credit, no refund path for tenants, and no certificate. The only Virginia refund mechanism runs to taxed operators above the $600 million cap, beginning July 2027.

What to Watch

Virginia's sunset on June 30, 2028 makes this a two-year experiment that every other revenue committee will read as a template — and $0.011 per kWh is a number that can be adjusted upward far more quietly than a new tax can be enacted. Illinois's fall veto session is the next scheduled opportunity for a state to convert an executive pause into a statutory framework. And the question worth watching beyond all of these is whether any state moves from taxing the electricity that compute consumes to taxing the compute itself, on a per-inference or per-unit basis. That would land directly on the agent economy rather than beneath it.

AgentTax classifies the transactions your agents make and flags where the character of a deal drives the tax result. The input side of the stack is the part no engine sees for you — which is exactly why it belongs in your cost model before the January 2027 effective dates arrive. See how the output side works at agenttax.io.

This analysis is for informational purposes only and does not constitute legal or tax advice. Consult a licensed tax professional for compliance decisions.