Washington lawmakers are considering ending a sales tax break for data center owners when they replace equipment, a move that would take effect July 1, 2026, and apply statewide. While Senate Bill 6231 would retain the sales tax break granted to new data centers, it specifically targets the “refurbishment” cycle of existing facilities.
As the state scrambles to fill a roughly $2 billion budget deficit, the state’s Department of Revenue estimates this change could generate $63.1 million in the current biennium and $143.9 million for the 2027-29 period.
“We have to make a lot of hard choices this year as we try to balance the budget,” said Sen. Noel Frame, D-Seattle, sponsor of the legislation.
SB 6231 was recently approved by the House, with four Democrats joining all of the Republicans in opposing the measure.
During its first Senate committee hearing on Wednesday, a coalition of data center interests, unions, and rural business representatives warned of potential economic fallout. They argued that if data centers avoid or leave the state, local tax coffers and job markets would suffer.
In 2023, data centers directly provided nearly 9,000 jobs, plus 39,000 indirect jobs in Washington, according to a PwC report commissioned by the Data Center Coalition. The sector generated $1.8 billion in state and local tax revenue.
Maintaining those economic contributions, however, depends on a constant cycle of infrastructure investment, industry advocates said. Dan Diorio, vice president of state policy for the Data Center Coalition, testified that the equipment inside these centers is typically replaced every three to five years.
“By taking away the refurbishment exemption, the bill will impair the ability of data center companies and their tenants to upgrade servers and energy infrastructure with the most modern and efficient technology,” Diorio said.
This legislative push comes amid a national surge in data center regulation. Driven by the artificial intelligence boom, elected officials and their communities are increasingly raising concerns over higher electrical bills and strained water supplies due to the facilities’ massive power and cooling needs.
Earlier this week, Microsoft and other industry proponents successfully defeated a high-profile data center bill in Washington that aimed to protect ratepayers from utility hikes and increase environmental transparency.
Governor Bob Ferguson included the elimination of the data center refurbishment tax break in his supplemental budget proposal and SB 6231 was requested by the state’s Office of Financial Management.
With the legislative session nearing its conclusion, the bill faces a March 12 deadline for approval.
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