North Carolina Grapples with Data Center Surge: Tax Relief, Consumer Safeguards, and Local Control Under Scrutiny

North Carolina is at a crossroads as it navigates a significant surge in data center development. Lawmakers are actively considering new legislation aimed at reshaping the landscape of this energy-intensive industry, with proposals focusing on tax structures, consumer protections, and the extent of local government authority.

Rethinking Tax Incentives Amidst Expansion

Currently, North Carolina offers substantial sales and use tax exemptions on electricity and equipment for data centers, a policy enacted in 2006 and expanded in 2015 to attract economic development. The North Carolina Department of Commerce estimates these exemptions currently save data centers approximately $50 million annually. However, with projections indicating a dramatic increase in proposed data center construction, this figure could skyrocket to an estimated $450 million per year.

This potential escalation has prompted calls for reform. House Speaker Destin Hall (R-Caldwell) voiced concerns that the existing incentives may no longer be necessary, suggesting that large corporations should contribute to the tax base like any other business. Governor Josh Stein has also urged the legislature to modify or repeal these exemptions, citing the need to shield consumers from rising energy costs and tax burdens.

“We must be clear-eyed about the cost of data centers to ratepayers in terms of higher power bills, and clear about their cost to taxpayers in terms of lost revenue,” Governor Stein stated at a recent energy policy task force meeting.

Legislative Proposals for Oversight and Protection

Several legislative measures are now under consideration. House Bill 1063, the “Ratepayer and Resource Protection Act,” championed by Democratic representatives, directly addresses Governor Stein’s request by proposing the repeal of existing sales tax exemptions for data centers. This bill aims to establish a predictable policy framework for incoming companies while simultaneously safeguarding consumers and utility bill payers.

A key provision of HB 1063 would require prospective data center owners to submit detailed disclosure statements to the Department of Environmental Quality, the North Carolina Utilities Commission, and local governments. These statements would need to outline projected electricity and water consumption, providing greater transparency into the environmental impact of these facilities.

In the Senate, SB 844, the “Affordable Energy Omnibus,” mirrors some of these consumer protection goals. It seeks to ensure future large-scale projects undergo approval by the Utilities Commission and aims to shield consumers from increased electricity costs associated with subsidizing data centers. Notably, SB 844 introduces a requirement for local referendums to approve new data centers, a significant departure from the House proposal.

Additional legislation, such as House Bill 1180, the “Data Center Amendments,” proposes the implementation of tariffs on large-load data centers by the Utilities Commission to prevent residential customers from shouldering disproportionate energy rate increases.

Local Moratoriums and the AI Debate

Amidst growing concerns, several municipalities across North Carolina have opted to enact temporary moratoriums on data center development. These pauses, ranging from 60 days to 32 months, provide local governments with crucial time to study the implications of these projects and develop appropriate regulations. Towns and counties including Apex, Chatham County, Gates County, Canton, Durham, Harnett County, Spring Hope, and Northampton County have all implemented such pauses.

A statewide moratorium is also being considered through House Bill 1189, the “Datacenter Transparency Act.” This bill proposes a two-year pause on data center permits to allow the General Assembly ample time to thoroughly evaluate the scope and impact of proposed constructions.

However, the burgeoning field of artificial intelligence presents a counterargument to broad moratoriums. Proponents of AI development argue that robust data center infrastructure is essential to support the technology’s growth. They express concern that statewide pauses could diminish North Carolina’s competitiveness in attracting AI-related economic opportunities.

“These partners are going to need to come up with a long-term sustainable plan to make sure that we can essentially build systems that not only take into account the growth that’s in North Carolina, but also the energy needs,” commented Rep. Zack Hawkins (D-Durham), a member of the state’s AI Leadership Council.

The question of local control over data center siting remains a point of contention. John Szoka, CEO of the Conservative Energy Network, believes that allowing local officials to ban data centers may be shortsighted, arguing that these facilities are integral to modern digital life. Conversely, Speaker Hall has indicated support for local decision-making, suggesting that the appropriateness of data centers can vary significantly by region.

As these legislative proposals move through committees, North Carolina faces the complex task of balancing economic development opportunities with the need for responsible resource management, consumer protection, and local community well-being.