Overview
Virginia offers data centers a sales and use tax exemption on qualifying equipment, with investment and job thresholds that vary by locality. The exemption is set to sunset in 2035, but operators making massive commitments—$35 billion or $100 billion—can extend it through 2040 or 2050. Loudoun County, the state’s data center hub, has moved to restrict by-right development by requiring special exceptions for new projects.
Incentives
Data Center Retail Sales and Use Tax Exemption
Virginia exempts retail sales and use tax on qualifying computer equipment and enabling software used in data centers.[1][2] Eligible equipment includes servers, routers, and related hardware, plus chillers and backup generators used to operate that equipment.
- A data center must enter a Memorandum of Understanding (MOU) with the Virginia Economic Development Partnership (VEDP) before using the exemption.[1]
- Standard thresholds require $150 million in new capital investment and 50 new jobs paying at least 150% of the local average wage.[2]
- In distressed localities, thresholds drop to $70 million and 10 new jobs, with the same wage standard.[2]
- Colocation facilities can qualify with tenants under a shared MOU, and tenants can use the exemption.[1]
Extension Beyond 2035 for Mega-Scale Commitments
The exemption is scheduled to end June 30, 2035, unless the operator qualifies for an extension.[2] Virginia created two mega-scale tiers to extend the exemption for the largest projects.
- A $35 billion investment and 1,000 new jobs qualify the operator to extend the exemption to 2040.[2]
- A $100 billion investment and 2,500 new jobs qualify the operator to extend the exemption to 2050.[2]
- At least 100 jobs in each extension tier must pay 150% of the local average wage.[2]
Requirements and Conditions
MOU and Performance Requirements
The MOU sets binding investment and job timelines and establishes repayment obligations if targets are missed.[1][2] Data centers may use the exemption before meeting thresholds, but they must repay the benefit if they fail to hit targets by the performance date.
Annual Reporting and Repayment Obligations
VEDP and Virginia Tax require annual reporting on capital investment, job counts, wages, and exemption value.[1][2] The statute requires biennial public reporting on the exemption’s aggregate costs and benefits. The exemption does not cover general building improvements or software sold separately from qualifying equipment.[2]
Local Zoning
Loudoun County Data Center Standards
Loudoun County launched a two-phase update to data center and substation standards in February 2024.[3] The county is home to the world’s largest concentration of data centers and has been the epicenter of Virginia’s data center boom.
- Phase 1, adopted March 18, 2025, amended the Comprehensive Plan and Zoning Ordinance to make data centers a conditional/special exception (SPEX) use where they were previously by-right.[3]
- The Board also adopted a Grandfathering Resolution for certain applications accepted before February 12, 2025.[3]
- Phase 2 is focused on new policy guidance and use-specific zoning standards for data centers and substations, including setbacks and buffering requirements.[3]
What to Watch
- Loudoun County’s Phase 2 data center standards will determine setbacks, buffering, and other siting limits that shape where and how new projects can be built.[3]
- Virginia’s biennial exemption reports will be a key source for monitoring the fiscal cost and job outcomes of the sales tax exemption.[2]
Sources
[1] Virginia Economic Development Partnership, “Data Center Retail Sales & Use Tax Exemption,” https://www.vedp.org/incentive/data-center-retail-sales-use-tax-exemption (accessed January 8, 2026).
[2] Virginia General Assembly, ”§ 58.1-609.3. Commercial and industrial exemptions (data center exemption and extensions),” Virginia Code, https://law.lis.virginia.gov/vacode/title58.1/chapter6/section58.1-609.3/ (accessed January 8, 2026).
[3] Loudoun County, “Data Center Standards & Locations,” https://www.loudoun.gov/5990/Data-Center-Standards-Locations (accessed January 8, 2026).