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TN — State Policy Updated January 2026

Tennessee

Statewide incentives and constraints, plus current legislative updates affecting data center projects.

Qualified Data Center Sales & Use Tax Exemptions Reduced Electricity Tax Rate TNECD FastTrack Grants Air Permits for Backup Generators Water Withdrawal Registration Stormwater Construction Permits Water Constraints

Overview

Tennessee actively courts data center development through a sales tax exemption program that requires $100 million in capital investment and 15 high-wage jobs. Qualified facilities receive tax exemptions on equipment and infrastructure plus a reduced electricity tax rate. The state expanded eligibility in 2024 to preserve incentives through corporate reorganizations.

Incentives

Qualified Data Center Sales & Use Tax Exemptions

Tennessee’s flagship program exempts qualifying data centers from sales and use taxes on core equipment and infrastructure.[1]

  • Investment threshold: $100 million capital investment over a three-year period (extendable to four years for good cause)[1][2]
  • Job requirement: 15 net new full-time positions paying 150% of the state average occupational wage[1]
  • Covered purchases: Computers, software, computer-related devices, cooling equipment, and backup power infrastructure[1]
  • Application: Requires a Qualified Data Center Exemption Certificate from the Department of Revenue for each location[2]

Reduced Electricity Tax Rate

Qualified data centers receive a 1.5% sales tax rate on electricity purchases used in operations, below the standard commercial rate.[1]

2024 Corporate Reorganization Extension

Public Chapter 886 (2024) allows data centers that previously qualified to retain their exemption status when transferred to an affiliate as part of a federal tax reorganization.[3] The facility does not need to restart the $100 million investment clock or rehire to meet job thresholds. The state fiscal note estimates ongoing revenue foregone from this expansion.[4]

TNECD FastTrack Grants

The Tennessee Department of Economic and Community Development offers reimbursable grants to local governments to offset real property acquisition, building retrofit, and equipment relocation costs for economic development projects.[5] The program is reserved for exceptional cases based on job creation and capital investment. While not data-center-specific, large-scale facilities may qualify.

Requirements and Conditions

Air Permits for Backup Generators

Data centers installing diesel backup generators or other combustion equipment must obtain construction and operating permits from the Tennessee Division of Air Pollution Control unless specifically exempted.[6] These permits address air contaminant emissions from emergency power infrastructure.

Water Withdrawal Registration

The Water Resources Information Act requires registration with TDEC for any withdrawal of 10,000 gallons or more in any day.[7] Data centers using evaporative cooling or significant process water typically exceed this threshold and must register with the Water Withdrawal Registration Program.

Stormwater Construction Permits

Construction projects disturbing one or more acres of land must obtain coverage under Tennessee’s general NPDES permit for stormwater discharges.[8] A Notice of Intent (NOI) must be submitted at least 30 days before land-disturbing activity begins.[8]

What to Watch

  • Legislative activity on changes to the Qualified Data Center program or new conditions tied to energy or water use
  • County- or city-level zoning overlays or moratoria targeting data center development (none identified statewide as of January 2026)

Sources

[1] Tennessee Department of Revenue, “Sales and Use Tax Notice #16-06: Changes in Requirements for a Qualified Data Center,” July 2016, https://www.tn.gov/content/dam/tn/revenue/documents/notices/sales/sales16-06.pdf (accessed January 8, 2026).

[2] Tennessee Department of Revenue, “Sales Tax for Data Centers, Headquarters and Call Centers” (Taxpayer Education webinar slides), June 2022, https://www.tn.gov/content/dam/tn/revenue/documents/taxpayer_education/sales/sales-tax-for-datacenters-headquarters-callcenters.pdf (accessed January 8, 2026).

[3] Tennessee Secretary of State, “Public Chapter No. 886 (HB 2182 / SB 2583),” April 11, 2024, https://publications.tnsosfiles.com/acts/113/pub/pc0886.pdf (accessed January 8, 2026).

[4] Tennessee General Assembly, Fiscal Review Committee, “Fiscal Note: HB 2182 / SB 2583,” February 24, 2024, https://www.capitol.tn.gov/Bills/113/Fiscal/HB2182.pdf (accessed January 8, 2026).

[5] Tennessee Department of Economic and Community Development, “Incentives & Grants (FastTrack Economic Development Fund),” https://tnecd.com/advantages/incentives-grants/ (accessed January 8, 2026).

[6] Tennessee Department of Environment and Conservation, Division of Air Pollution Control, “Air Permitting,” https://www.tn.gov/environment/permit-permits/air-permits.html (accessed January 8, 2026).

[7] Tennessee Department of Environment and Conservation, Division of Water Resources, “Water Withdrawal Registration Program,” https://www.tn.gov/environment/program-areas/wr-water-resources/water-quality/water-withdrawal-registration-program.html (accessed January 8, 2026).

[8] Tennessee Department of Environment and Conservation, “Notice of Intent (NOI) for General NPDES Permit for Stormwater Discharges from Construction Activities (TNR100000),” 2021 Construction General Permit form (CN-0940), https://tdec.tn.gov/etdec/DownloadFile.aspx?row_id=CN-0940 (accessed January 8, 2026).