Watchdog report: Data centers can help taxpayers if done right

As property tax bills climb across the U.S., a new report from a tax watchdog finds communities welcoming data center development are bucking the trend.

A data center is a large facility housing the computers that store and process the data powering the internet, cloud computing, artificial intelligence and nearly every other digital service Americans use daily.

The National Taxpayers Union reports that one Virginia county, known as Data Center Alley, has cut its property tax rate every year for a decade while most other counties across the nation have experienced the opposite.

Loudoun County, Virginia, is home to the highest concentration of data centers in the U.S., the report noted. The county includes many wealthy Washington, D.C., suburbs.

In 2025, data centers generated 38% of its total revenue, with projections showing more than $1.3 billion in personal property tax on equipment alone for 2026.

The county’s real property mill rate declined from $1.145 in tax year 2016 to $0.805 per $100 in assessed value for tax year 2025, according to the county.

That amounts to a 30% tax decrease.

The data centers generate so much revenue for Loudoun County that managing the surplus, not plugging a deficit, is the actual budget challenge, “most notably by generating a disproportionately high level of annual revenue growth that must be allocated in order for the county to adopt a balanced budget in accordance with Virginia law,” the county board said.

By contrast, property taxes rose 30% nationwide between 2019 and 2024, outpacing wage growth and general inflation, according to Appeal Desk, a service that appeals property tax assessments.

In 2025 alone, $396.8 billion in property taxes across the country were levied on single-family homes, up 3.7% from 2024, with the average homeowner paying $4,427, Newsweek reported.

But Loudoun County is not the only place enjoying the data center boom.

Projects in Mississippi, Louisiana, North Dakota, Lancaster, Pennsylvania, and Henrico County, Virginia, are all cited by NTU as benefiting from tax or electric-rate advantages because of data centers.

“Local communities see real benefits from data center investment; those benefits can be maximized when coupled to broad-based tax policies that treat inputs and investments for data centers as well as they do for other businesses,” NTU authors said.

But the watchdog group remains cautious about tax incentives specifically targeting data centers.

Tax incentives are not the primary reason data centers choose where to locate, the report said.

However, tax breaks can backfire by subsidizing investment that would have happened anyway or by shrinking the local tax base.

“Taxpayers should be wary of local officials using tax incentives to draw construction of any particular business,” the authors warned, “especially as other tools may be more effective at attracting data centers.”

Despite growing fears that data centers consume large amounts of resources such as water and electricity, NTU found the projects can add infrastructure while lowering rates.

The key is requiring data centers to develop energy solutions in-house, similar to what steel mills once did, while ensuring electric grid expansion is justified by an expanded customer base.

“In areas where electricity prices increase, it is often a symptom of our nation’s aging power infrastructure and the inability to increase supply despite abundant energy resources,” the report said.

As for water use, the authors concluded the needs of data centers “is comparable to water use in most industries.”

Dry states such as Arizona, Nevada and Colorado require the most management.

NTU also noted carbon emissions from data centers account for less than 2%, compared with 10% for agriculture and 12% for manufacturing.

Overall, NTU said tax policy can make taxpayers big winners in the AI revolution rather than victims.

Taxpayers have a stake in data center development not just as ratepayers, but also as workers and users of the digital economy.

“Structural safeguards such as Truth in Taxation reforms, limits on government tax and expenditure growth, and conformity with federal expensing provisions could all contribute to this healthy climate,” the authors said.

Truth in Taxation is a policy designed to prevent property taxes from rising automatically when home values increase.