Which States Are Pausing Data Center Tax Incentives—And Why
Summary
Arizona has paused new tax breaks for data centers for three years while it reviews the benefits and drawbacks of these incentives. Other states are also reconsidering such tax incentives due to concerns about environmental impact, utility demands, and community costs.Key Facts
- Arizona froze new data center tax incentives for three years starting July 1.
- The pause affects new applications and renewals of the state's data center tax exemption program.
- Governor Katie Hobbs supports a review to balance economic growth with concerns about groundwater use and utility strain.
- Arizona adopted its data center tax incentives in 2013 to attract technology investment.
- The pause is estimated to save the state about $57 million.
- Residents have raised concerns about water use, environmental effects, and infrastructure costs related to new data centers.
- At least 28 states introduced proposals in 2026 to change or limit data center tax incentives.
- Some states, like Illinois, Massachusetts, and Virginia, are pausing or debating changes to incentives to address community and environmental concerns.
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