Georgia Governor Vetoes Moratorium On Data Center Tax Breaks

Georgia Gov. Brian Kemp vetoed legislation Tuesday that would have suspended tax incentives for data centers in the state — nixing a change that could have dramatically hindered data center development in one of the industry’s fastest-growing markets.

Kemp used his veto pen to kill a proposed moratorium on a program allowing data centers and their tenants to avoid paying sales and use taxes on the billions of dollars of equipment housed in their facilities.

The bill, which the Georgia Legislature approved in March amid growing concern over data centers’ impact on the Peach State’s power grid, would have stopped the state from approving new applications for the tax abatement program for at least two years while a commission studies the impact of the industry’s energy use.

Developers and data center industry groups had lobbied aggressively against the changes, which they said would effectively end new data center development in a state that has emerged as a digital infrastructure hub. Opponents of the bill had also portrayed the legislation as an abrupt about-face on a policy that lawmakers had approved just 24 months earlier, arguing that ending the tax breaks amounted to pulling the rug out from under firms that had made massive investments in the state due in part to these tax abatements.

It is an argument the Kemp administration ultimately found convincing. 

“Only two years ago the legislature extended these tax exemptions for an additional three years, through 2031,” Kemp wrote in a statement accompanying the veto decision.

Kemp said changing the tax rules would be unfair to firms with projects already in development, undermining their investments and limiting infrastructure and job development.

Targeted tax breaks on the equipment housed in data centers have played a key role in turning Georgia, and particularly Metro Atlanta, into the country’s sixth-largest data center hub. Major cloud providers and other Big Tech tenants can deploy as much as $4B worth of IT equipment at a single data center site and replace it every four to six years, so avoiding 7% or 8% sales and use taxes translates into hundreds of millions of dollars in cost reductions. As such, these tax abatements are high on the pecking order of considerations for site selection.

“We appreciate this action by Governor Kemp and his leadership in ensuring that certainty and predictability remain front and center in defining the state’s long-term commitment to its economic development programs and policies,” Josh Levi, president of advocacy group the Data Center Coalition, said in an email to Bisnow.

Data center development has more than doubled in Georgia since the state first enacted tax breaks targeting the industry in 2018, and that growth has accelerated in recent months. The Atlanta area’s data center development pipeline has grown by 211% since the start of 2023, making it the fastest-growing primary data center market in the country, according to CBRE. 

Eliminating these tax incentives would likely close the floodgates on new data center projects pouring into Atlanta. Industry leaders told Bisnow the presence of this kind of state tax abatement program, offered in some form in around 30 states, is effectively a prerequisite for developers pursuing large-scale data center projects. 

“They're investing hundreds of millions of dollars into these sites, so if they feel they're being penalized here but get incentives in other markets, they're definitely going to move those deployments elsewhere,” Karlton Holston, executive vice president for digital infrastructure at Landmark Dividend, said at a Bisnow event in Atlanta last month. “It definitely moves the needle as they look at various markets.”

But slowing the pace of data center development in the state was a feature of the proposed legislation, not a bug. Supporters of the now-vetoed bill had argued the industry’s rapid growth is disproportionately straining the state’s power grid and placing an undue burden on regular ratepayers.

Indeed, as in other major markets, demand for new data centers in Georgia is bumping up against constraints on available power from local utilities. Electricity provider Georgia Power has indicated that data centers account for 80% of the generating capacity the utility is looking to add in the coming years, and last month it voted to add 1.4 gigawatts of largely fossil fuel generation to meet data center demand. 

Advocates for the bill also argued that data centers amount to a poor investment for the state, pointing to a 2022 audit showing that the state is receiving less than 25 cents of tax revenue per dollar saved by data center developers. 

“These do not create jobs,” state Sen. John Albers told Capitol Beat in March. “They create big buildings, but they do not create jobs.”