With Virginia lawmakers divided on how best to tax and regulate data centers, U.S. Sen. Mark Warner, D-Va., is trying to show them the way.
Warner introduced a package of legislation Tuesday to more tightly regulate the use of artificial intelligence, including requirements for the data centers essential to the fast-growing technology. Part of the package is the "Data Center Tax Accountability and Disclosure Act," which would require data centers to publicly disclose their energy use, water consumption and emissions while also meeting high standards for energy efficiency and environmental protection in return for a federal tax break.
"States, localities, and residents need to have accurate information about the electricity and water needs of data centers to make the best decisions for their communities," he said in his proposed framework for oversight of artificial intelligence that requires massive amounts of data processing and storage. "To do business in states and localities, data center developers and operators should be fully transparent regarding their energy and water needs."
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Warner, who serves on the Senate finance and banking committees, also proposed linking bonus depreciation for federal income taxes to data centers that meet the highest levels of energy efficiency "by consuming less energy and water, fewer natural resources, and reducing the overall impact of development on the communities in which they are located."
The proposal received enthusiastic support from the Virginia League of Conservation Voters — as well as the Chesapeake Bay Foundation and Sierra Club — for attempting to link federal tax breaks with clean energy and efficiency, as they want Gov. Abigail Spanberger and the General Assembly to do at the state level after a bitter budget battle over a state sales and use tax exemption that has helped make Virginia the global center of the data center industry over the past 16 years.
"While we still need strong, state-level standards, and a pause on data center approvals in Virginia until lawmakers deliver them, this legislation meets the moment in a big way, and our governor and General Assembly should take note," said Michael Town, executive director of the conservation league, in a statement of support.
Warner's full package for oversight of artificial intelligence also includes proposals to promote competition in an industry led by some of the largest companies in the world; community safeguards against use of AI to produce materials featuring child sexual or non-consensual intimate images; creation of a workforce transition fund to help workers displaced by new automated technology; and establish guardrails to protect national security from potential risks created by artificial intelligence.
But with Warner seeking a fourth Senate term this fall, his proposals for the data center industry go to the heart of an ongoing policy debate in Virginia, where a joint subcommittee will consider tax policy for the industry. The panel will face a threshold issue of whether to repeal the sales tax exemption on purchases of computer equipment — as Senate Finance Chair Louise Lucas, D-Portsmouth, proposed — or tie the tax break to requirements for greater data center investments in clean energy, energy efficiency and phasing out use of diesel generators for backup power generation.
Del. Rip Sullivan, D-Fairfax, had proposed linking the continued availability of the tax break to environmental and energy protections, but his legislation died in Lucas' committee, and its provisions weren't included in the final budget compromise the legislature approved June 29.
However, Sullivan is a member of the joint subcommittee that will consider potential tax policies to recommend for the General Assembly when it returns to Richmond in January for a 45-day session that will include revisions to the new budget that Spanberger will introduce in December. He didn't know about Warner's proposed package until it emerged Tuesday, but he welcomed the senator's move to "take part of what we're trying to do in Virginia and applying it nationally."
"I certainly hope my colleagues in the General Assembly follow his lead," Sullivan said.
Josh Levi, president and CEO of the Data Center Coalition, said in a statement Tuesday night, the "DCC is in the process of reviewing Senator Warner's proposed legislation as it pertains to the data center industry. The industry has been and remains committed to meaningful and sustained engagement with Senator Warner, his colleagues in Congress, and state and local officials to ensure the continued responsible development of America’s digital infrastructure, including the efficient and sustainable use of resources like energy and water."
Warner's approach would marry a tax incentive that data centers really like with energy and environmental standards that the U.S. Green Building Council developed to rate the design and performance of buildings, known as LEED — Leadership in Energy and Environmental Design — to four levels of credential. The proposed legislation would require data centers to comply with the highest levels, platinum and gold, respectively, to continue using bonus depreciation to reduce the income taxes they pay.
"The bonus depreciation tax structure is very important to the data center industry," said Blair St. Ledger-Olson, director of advocacy and campaigns at the League of Conservation Voters.
The league and other environmental groups were unhappy that a highly public battle between Democratic leaders over data center policy in the budget ended without new requirements for data center investments in reduced pollution and use of clean energy in return for a sales tax exemption that saves its members $1.9 billion in state, local and regional taxes.
St. Ledger-Olson said the LEED standards in Warner's legislation represent a high bar for existing and future data centers to meet to maintain favorable tax treatment.
"I hope Virginia Democrats are paying attention," she said.
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