- The rapid growth of data centers, especially AI-driven hyperscale centers, is intensifying debate on whether states should subsidize them with tax dollars.
- Kentucky's sales tax exemption for data center equipment could cost over $1 billion in forgone revenue for just a few large centers, far exceeding initial estimates of $15 million annually.
- The tax break lasts up to 50 years and covers most equipment costs, with minimum investment thresholds varying by county population.
- Proposed data centers in Kentucky (e.g., four major projects) could result in $1.2–$2.2 billion in lost sales tax revenue initially, with additional losses as equipment is replaced.
- Many states, including Ohio, Arizona, Texas, New York, Illinois, Virginia, Nebraska, and Pennsylvania, are pausing, limiting, or ending data center tax breaks due to low returns, high costs, and risks.
- Localities in Kentucky are imposing moratoria on new data centers, and the state's governor has indicated projects must not pass utility costs onto ratepayers or lack community benefits.
- Decision makers should thoroughly debate the full costs and benefits before awarding massive tax breaks, as the funds could otherwise support schools, Medicaid, and infrastructure.