North Carolina has repealed the sales and use tax exemption on electricity purchased by qualifying data centers, while preserving exemptions for qualifying equipment and other capital investments. The change was enacted this week when Gov. Josh Stein signed the state’s 2026 budget.
Stein highlighted the repeal as one of the budget’s accomplishments, saying it eliminates tax exemptions for data centers’ electricity use. The move comes as lawmakers respond to the rapid growth of AI infrastructure and its impact on statewide electricity demand.
What Changed
The budget repeals the sales and use tax exemption specifically tied to electricity purchases by qualifying data centers, but leaves existing exemptions for equipment and other eligible capital investments untouched. According to the North Carolina General Assembly’s Fiscal Research Division, eliminating the electricity exemption is projected to increase General Fund revenue by $21.4 million in fiscal year 2026-27, rising to $28.6 million annually by fiscal year 2030-31. The repeal took effect with passage of the state budget.
Industry Reaction
Neil Osnato, founder of Persistence Analytics Group, said the change alters the economics at the margin, particularly for large AI campuses where power is a significant operating expense, but he does not view it as the primary factor in site selection. He noted that developers still prioritize whether utilities can deliver power on schedule, whether transmission infrastructure can support growing loads, and whether operating costs remain predictable over time.
Osnato said the policy reflects a broader shift: states may be growing less willing to subsidize open-ended electricity consumption while continuing to support capital investment, construction, and local economic development. He framed it as separating two incentives long treated as one, encouraging construction of data centers versus subsidizing decades of electricity consumption.
Dan Diorio, vice president of state policy at the Data Center Coalition, said the electricity exemption was an important part of the state’s overall incentive program, but welcomed that the budget still provides certainty for continued data center investment in North Carolina.
What’s Next
North Carolina lawmakers are also weighing Senate Bill 730, the proposed Ratepayer Protection Act, which would require special utility service agreements for large-load customers and set additional requirements for future data center development.
Taken together, the budget change and pending legislation suggest North Carolina is refining rather than retreating from its approach to AI infrastructure, encouraging capital investment while increasing scrutiny of the long-term public costs tied to rising electricity demand. For site selectors and hosting operators, the message is clear: power availability, deliverability, and cost durability are becoming more important than headline tax incentives.