Overview
Kentucky offers data centers a sales and use tax exemption for equipment with terms ranging from 15 to 50 years, depending on capital investment. The state uses a tiered threshold system tied to county population — projects in rural counties need as little as $25 million in investment, while those in urban areas must meet a $450 million floor. A 2025 law (HB 775) expanded the program statewide and extended maximum terms to 50 years, a change backed by Google and Meta lobbying.
Incentives
Sales and Use Tax Exemption for Data Center Equipment
Kentucky exempts sales and use tax on data center equipment — servers, networking gear, cooling systems, generators, substations, water conservation systems, and related software and warranty services — for projects approved by the Kentucky Economic Development Finance Authority (KEDFA).[1][2]
- Equipment definition is broad and includes repair and replacement purchases; electricity used by the data center is excluded.[1]
- Exemption certificate issued by the Department of Revenue after KEDFA preliminary approval and execution of a memorandum of agreement (MOA).[2][3]
- Term length set in the MOA, capped at 50 years for projects investing $450 million or more, 25 years for projects under $450 million, and 15 years for project organizers (infrastructure-only sponsors).[1][5]
Tiered Capital Investment Thresholds
The minimum capital investment required to qualify for the exemption is based on the county’s population (using five-year American Community Survey estimates at the time of application) and must be met within five years of preliminary approval:[1]
- $450 million in counties with population 100,000 or more
- $100 million in counties with population 50,000 to 99,999
- $25 million in counties with population under 50,000
- $150 million for project organizers (infrastructure sponsors without data center operations)
Requirements and Conditions
Capital Investment Deadline and Clawback
Projects must meet their minimum capital investment threshold within five years of preliminary approval. If the threshold is not met by year five, the exemption is revoked and the unpaid tax is assessed with interest.[2][3][5]
No Replacement Projects
KEDFA cannot approve a data center project that replaces an existing Kentucky facility, except in narrow cases of closure, foreclosure, casualty, or inability to expand on-site.[4] Projects that cause lease abandonment or termination without lessor consent are also ineligible.[4]
No Stacking with Other Economic Development Incentives
A qualified data center project cannot accept other KRS Chapter 154 economic development incentives, and projects already benefiting from Kentucky’s sales and use tax exemption for electricity used in commercial cryptocurrency mining are excluded.[1]
Annual Reporting and Transparency
Beginning September 1, 2025, preliminarily approved companies must file annual reports on equipment purchases and taxes not paid. The Department of Revenue must report aggregate data to the Interim Joint Committee on Appropriations and Revenue by November 1 each year. Data reported under KRS 139.499 is not confidential taxpayer information.[2]
Local Zoning
Oldham County Moratorium
The Oldham County Fiscal Court approved a 150-day moratorium on new data center applications on July 2, 2025, pausing all data center projects in the county while officials debated zoning and oversight rules.[7]
What to Watch
- Local moratorium outcomes: Oldham County’s 150-day moratorium expires in late 2025 or early 2026; watch for new zoning ordinances or conditional use requirements that emerge from the pause.
- KEDFA approval pipeline: The first MOAs under the expanded HB 775 framework (effective June 2025) will reveal how KEDFA interprets the tiered thresholds and term-length caps in practice.
- Annual transparency reports: The Department of Revenue’s first aggregate report to the legislature is due November 1, 2026, which will show total exempted equipment purchases and forgone revenue.
Sources
[1] Kentucky Legislature, “KRS 154.20-220 Definitions for KRS 154.20-220 to 154.20-229,” effective June 27, 2025, https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=56356 (accessed January 8, 2026).
[2] Kentucky Legislature, “KRS 139.499 Exemption for certain data center equipment,” effective July 15, 2024, https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=55425 (accessed January 8, 2026).
[3] Kentucky Legislature, “KRS 154.20-226 Application, approval, and review process,” effective July 15, 2024, https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=55422 (accessed January 8, 2026).
[4] Kentucky Legislature, “KRS 154.20-228 Eligibility for approval of a proposed data center project,” effective July 15, 2024, https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=55423 (accessed January 8, 2026).
[5] Kentucky Legislature, “KRS 154.20-229 Memorandum of agreement — Required terms,” effective July 15, 2024, https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=55424 (accessed January 8, 2026).
[6] Marcus Green, “New Kentucky law lobbied by Google and Meta expands tax breaks for large data centers,” WDRB, March 28, 2025, https://www.wdrb.com/in-depth/new-kentucky-law-lobbied-by-google-and-meta-expands-tax-breaks-for-large-data-centers/article_11b81ed2-6bef-486a-9f2d-aec72d6f4b6c.html (accessed January 8, 2026).
[7] Joe Sonka, “Oldham County passes sweeping data center moratorium, executive fired over recording,” Louisville Public Media, July 2, 2025, https://www.lpm.org/news/2025-07-02/oldham-county-passes-sweeping-data-center-moratorium-executive-fired-over-recording (accessed January 8, 2026).