Gov. Josh Stein’s proposal to revisit North Carolina’s data center tax incentives is drawing attention from lawmakers and industry leaders, with some raising questions about the process, available data, and level of legislative involvement.
Stein’s administration has begun examining a long-standing sales tax exemption for data centers, citing concerns that the industry’s rapid expansion could increase electricity demand and potentially affect costs for residential and small-business ratepayers.
The discussion is unfolding within the governor’s State Energy Policy Task Force, which has been studying the strain that large-scale computing facilities place on the power grid.
“We cannot be blind to the impact these data centers are having on our state,” Stein said during the task force meeting last week. “They need to pay their way, so that our residential consumers don’t have to bear the cost.”
Stein questioned the rationale behind continuing the tax incentives.
“Do we really want to subsidize data centers’ consumption of energy and electricity when they make everyone else’s power bills go up?” Stein said. “It doesn’t make much sense to me.”
Joseph Harris, a fiscal policy analyst at the John Locke Foundation, said tax policy can determine who ultimately bears those costs.
“Targeted tax exemptions, such as those for data centers, distort resource allocation and ultimately require higher rates for everyone else,” Harris said. “A lower, broad-based tax rate is a more efficient and sustainable alternative.”
Stein finished by emphasizing that his administration is not opposed to the industry itself, but to what he described as an imbalance in the distribution of costs.
“AI will be part of our future, and we want to keep innovation central to this state’s economic development strategy,” he said. “But we cannot be blind to the impact these data centers are having on our state.”
Stein argued that the broader economic environment has shifted, reducing the need for incentives altogether. He has framed the issue as a matter of protecting ratepayers, citing rapid growth in energy demand driven by data centers. That concern resonates strongly with voters.
A recent Carolina Journal poll found overwhelming support among North Carolina voters for requiring data centers to generate their own electricity rather than rely on the broader grid. Nearly 78% of likely voters supported the requirement, including about 60% who said they “strongly” supported it; while fewer than 10% opposed the idea.
But members of the task force and others in attendance raised concerns about both the process and the substance of the proposal, questioning whether a sweeping change to state tax policy should originate outside the General Assembly.
Several lawmakers indicated the issue surfaced quickly, with limited prior vetting, leaving some members feeling caught off guard by its scope. Others questioned whether an executive-led energy panel is the appropriate venue for shaping tax policy with far-reaching economic implications.
Industry representatives echoed the concern.
Amazon government affairs official Rob Corradi questioned whether the State Energy Policy Task Force was the appropriate place to begin the conversation about the sales and use tax exemption. Instead, he said, the discussion should start in the General Assembly. Corradi also noted that similar efforts in other states have largely failed, pointing to proposals in Georgia and Virginia to roll back or limit data center tax incentives.
Beyond the procedural concerns, he warned that changing the rules after companies have already committed significant investments could have broader consequences.
In Richmond County, Amazon is planning a data center project with an investment of up to $10 billion.
“We should think about what it looks like when a state makes assurances to an industry that part of the reason they come to a state is that certain exemptions are in place,” Corradi said. “And then, once that industry makes those commitments and starts hiring North Carolina residents and creating jobs that are both permanent and long-term temporary jobs here in the state, what it looks like for the state’s business, frankly, reputation if the landscape shifts.”
A recent analysis by the North Carolina Department of Commerce estimated that existing data centers avoid $45 million to $57 million in sales taxes annually, including roughly $25 million to $37 million in equipment sales taxes and about $20 million in electricity sales taxes.
Those numbers are projected to grow significantly.
If planned projects move forward, officials estimate the state could forgo between $1.5 billion and $2.3 billion in tax revenue during construction alone, with an additional $450 million in tax revenue annually once those facilities are operational.
The state, however, lacks precise data on the true cost of the tax break. North Carolina has not historically required data center operators to report the value of their sales tax exemptions, leaving policymakers to rely on estimates rather than verified figures. Task force members have also acknowledged that the state does not yet fully understand the full impact of data centers on energy demand, infrastructure needs, and long-term costs.
That lack of firm data has fueled skepticism about the proposal’s timing.
“This is a major policy shift being discussed without a complete picture,” one attendee said during the meeting.
Critics on the panel also pointed to what they see as an incomplete fiscal picture.
While the administration’s analysis emphasized potential lost tax revenue, it did not provide a full accounting of the economic benefits associated with data center investment, according to others on the panel, who say the lack of a comprehensive cost-benefit analysis makes it difficult for lawmakers to fully evaluate the trade-offs.
For now, the discussion remains in its early stages, with no formal proposal introduced in the legislature. Any changes to the tax code would ultimately require approval from the General Assembly.
