Ohio considers eliminating tax incentives for data centers

COLUMBUS, Ohio (WCMH) -- Ohio lawmakers are considering abolishing a tax exemption for new data centers coming to the state.

"Ohio could put itself very much a competitive disadvantage," said Dan Diorio, senior director of state policy for the Data Center Coalition. "Data centers are hundreds of millions of dollars, if not billions of dollars, in capital investments, and they really thrive and depend on regulatory certainty."

Ohio currently offers a tax exemption to major data centers, and has since 2011. Eligible companies must invest at least $100 million over a three-year period and have an Ohio payroll of more than $1.5 million annually to be approved for a partial or total sales tax exemption on construction and infrastructure costs.

However, the Senate budget proposal removes the sales and use tax exemptions for a number of currently eligible groups, including data centers. Under the budget, the Tax Credit Authority would not be allowed to enter any sales and use tax exemptions for data centers after Oct. 1, 2025.

Diorio said doing so would harm Ohio's competitive advantage over other states and could result in fewer investments. However, the tax exemption has drawn criticism from advocacy groups who claim the state is too generous with data centers, especially after delays from Intel and "paused" contracts from Microsoft this year.

These exemptions encourage data centers to select Ohio for their operations. For instance, Vantage Data Centers, which is expected to announce a new data center in Fairfield County and already operates in New Albany, was approved for a 50% tax exemption through the end of 2033. That credit is estimated to be worth nearly $7 million.

The Data Center Coalition (DCC) represents and advocates for the data center industry in the U.S., and Diorio said Ohio has emerged as a major market. He said although the tax exemption is not the only incentive for data centers to take root in the Buckeye state, it is a large one.

"Ultimately this is an economic benefit and an economic driver for the state, and it's going to put the state at risk for economic development," Diorio said.

According to NAIOP, a commercial real estate development association, 36 states offer a tax incentive for data centers. Diorio said some states offer full exemptions, but Ohio's policy allows the state to offer partial tax exemptions too, giving the state more control.

According to a report from a third party issued by the DCC, data centers provided 133,100 jobs and more than $8 billion in Ohio in 2023, the most recently available data. Diorio pointed to this data, saying the funding lost in tax exemptions is incomparable to the economic benefit the bring.

Not everyone agrees. In January, Policy Matters Ohio challenged these tax breaks, alleging they cost more money then they bring in. Using September 2024 tax exemption data, Policy Matters Ohio estimated the state would lose out on $281.88 million in tax breaks for just 13 companies.

"Why do we want to provide massive subsidies to some of the wealthiest corporations when the result could be higher costs for Ohioans and Ohio businesses?” Policy Matters Ohio research director Zach Schiller said. "Data centers aren’t big job creators; in fact, the state subsidies often amount to $1 million or more for each new job created."

Diorio said data centers do create long-term jobs, with temporary construction workers often going from site to site for years building data centers. He said data centers aren't going anywhere, and encouraged Ohio lawmakers to keep the state competitive.

"Data centers are the backbone of the 21st Century economy," Diorio said. "It's how we work, it's how we learn, it's how we communicate, it's our health care records. It's our banking records. It's state, federal, state and local governments. It's how we stay connected."

The Senate budget proposal still needs to be approved by the House before it is sent to the governor, so nothing is final. The budget is expected to be approved by the governor and take effect on July 1.