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KS — State Policy Updated January 2026

Kansas

SB 98 Data Center Sales Tax Exemption PEAK payroll withholding tax incentive HPIP capital investment tax credit Fusion Center security approval 10-year utility purchase agreement Water conservation requirements Ineligible for economic development electricity rates Utility Regulation Water Constraints

Overview

Kansas enacted SB 98 in 2025 to attract large data center projects with a 20-year sales and compensating tax exemption on construction, equipment, and related labor. To qualify, projects must invest at least $250 million, create 20 jobs, secure approval from the Kansas Fusion Center Oversight Board, and commit to a 10-year electricity purchase agreement with the local retail utility. Lawmakers added restrictions late in the session to address grid and water concerns, barring qualified data centers from discounted economic development electric rates and requiring water conservation practices.[1][2][3][4][7]

Incentives

SB 98 Data Center Sales Tax Exemption

Kansas’s core data center incentive is a 20-year exemption from state and local sales and compensating taxes for qualified projects. The exemption covers purchases for construction, remodeling, equipment, and related labor services, including contractor purchases, made on or after July 1, 2025.[1][2][3]

Eligibility requires:

  • $250 million minimum in eligible data center costs within five years of commencing operations[2][4]
  • 20 new jobs created within two years of commencing operations[2][4]
  • Prior Fusion Center Oversight Board approval to ensure the project does not pose critical infrastructure risks[1][2]
  • A 10-year electricity purchase agreement with the retail utility serving the facility[1][2]
  • Adoption of water conservation and reuse practices[1][2]

The exemption excludes the cost of electricity.[4] Qualified data centers are also ineligible for discounted economic development electricity rates available to other projects.[1][2]

PEAK (Promoting Employment Across Kansas)

PEAK allows eligible firms to retain or receive refunds of 95% of payroll withholding taxes for new Kansas jobs. Terms run up to seven or ten years depending on the number of jobs created. This program is not data center-specific; eligibility depends on meeting wage, industry, and program criteria.[5]

HPIP (High Performance Incentive Program)

HPIP offers a 10% income tax credit on eligible capital investment, a sales tax exemption tied to that investment, and a training tax credit up to $50,000. Like PEAK, this is a general economic development program that data center projects may pursue if they qualify.[6]

Requirements and Conditions

Fusion Center Security Review

SB 98 requires prior approval from the Kansas Fusion Center Oversight Board, which evaluates whether a proposed project poses risks to critical infrastructure. The Board has authority to deny projects on security grounds.[1][2]

Electricity Purchase Agreement

Qualified firms must enter a 10-year electricity purchase agreement with the serving retail utility. This requirement ties the data center’s power demand to the local grid and excludes the facility from discounted economic development electric rates.[1][2]

Water Conservation Practices

SB 98 mandates that qualified data centers adopt water conservation and reuse practices. The statute does not specify performance metrics, but this requirement reflects legislative concern about water impacts in a state with limited groundwater resources.[1][2][7]

Compliance and Recapture

The Kansas Department of Commerce retains periodic review authority and audit access. If a firm breaches its agreement, the state may require repayment of the exemption or terminate the incentive. Telecommunications, wireless, and video service providers are excluded from the definition of a qualified firm.[1][2]

Utility and Grid Rules

Qualified data centers under SB 98 must purchase electricity from the retail utility serving the facility for 10 years. They are ineligible for discounted economic development electricity rates that other large projects may negotiate. This restriction was added during the 2025 legislative session in response to concerns about grid capacity and cost-shifting to residential and agricultural ratepayers.[1][2][7]

Water and Environmental Rules

SB 98 requires data centers to adopt water conservation and reuse practices, but the statute does not define specific metrics or reporting requirements. Kansas Reflector reported that lawmakers added this language late in the session to address concerns about water use in a state where many regions rely on depleting groundwater aquifers.[1][2][7]

What to Watch

  • Implementation of water conservation standards: The statute requires conservation practices but does not specify performance metrics or reporting. Watch for Commerce or environmental agency guidance defining these expectations.
  • Fusion Center approval process: The Oversight Board’s security review is a new step in Kansas economic development. Track whether any projects are denied or delayed on critical infrastructure grounds.
  • Utility rate impacts: The 10-year purchase requirement and bar on discounted rates may shape where data centers choose to locate within Kansas. Monitor how utilities adjust large-load tariffs in response to SB 98 projects.

Sources

[1] Kansas Department of Commerce, “SB 98 Data Center Sales Tax Exemption,” November 21, 2025 (updated December 5, 2025), https://www.kansascommerce.gov/program/business-incentives-and-services/sb-98-data-center-sales-tax-exemption/ (accessed January 8, 2026).

[2] Kansas Department of Commerce, “Data Center Sales Tax Exemption Program Guidelines (SB 98),” November 1, 2025, https://www.kansascommerce.gov/wp-content/uploads/2025/11/Data-Center-Sales-Tax-Exemption-Program-Guidelines_20251124_FINAL.pdf (accessed January 8, 2026).

[3] Kansas Department of Revenue, “Notice 25-03: Sales Tax Exemption for Data Centers,” July 3, 2025, https://www.ksrevenue.gov/taxnotices/notice25-03.pdf (accessed January 8, 2026).

[4] Kansas Legislative Research Department, “Qualified Data Center Sales Tax Exemption; SB 98 (2025 Summary of Legislation),” 2025, https://kslegislature.gov/li/b2025_26/measures/documents/summary_sb_98_2025 (accessed January 8, 2026).

[5] Kansas Department of Commerce, “Promoting Employment Across Kansas (PEAK),” n.d., https://www.kansascommerce.gov/program/business-incentives-and-services/peak/ (accessed January 8, 2026).

[6] Kansas Department of Commerce, “High Performance Incentive Program (HPIP),” n.d., https://www.kansascommerce.gov/program/business-incentives-and-services/hpip/ (accessed January 8, 2026).

[7] Kansas Reflector, “Kansas Legislature slips under the wire a sales tax break to incentivize ‘hyperscale’ data centers,” Tim Carpenter, April 15, 2025, https://kansasreflector.com/2025/04/15/kansas-legislature-slips-under-the-wire-a-sales-tax-break-to-incentivize-hyperscale-data-centers/ (accessed January 8, 2026).