(The Center Square) – A free pass given to data center companies on the Pennsylvania sales tax is erasing hundreds of millions of dollars in state revenue, and a lawmaker wants to revoke the free pass and use the new flow of money to lower gas prices.
The concept from Sen. Jarrett Coleman, a Lehigh County Republican, comes as data center companies appear to be booming, with municipal governments around the state under pressure to make decisions on big-dollar data center land development proposals replete with unanswered questions. At the same time, gas prices have skyrocketed.
The average price per gallon in Pennsylvania was $4.42 on Friday, an increase of eight cents overnight and 38 cents in the past month. A year ago, the price was $3.36.
The sales tax break under the so-called Computer Data Center Exemption Program took effect on Jan. 1, 2022. A recent state report said about 12 data centers benefit from the break.
The exemption eliminated $41.1 million in revenue in 2024-25; will eliminate $114.8 million in revenue in the current fiscal year; and eliminate ever-increasing amounts through 2030-31, when the loss is projected at $517.2 million, according to the report.
The program, Coleman said in a memo, has achieved its objective and the industry appears to be doing fine. There are, he said, reports “of more than fifty new data centers added and proposed in the state.”
His concept would have the new flow of revenue that would result from revoking the exemption be used to reduce the Oil Company Franchise Tax, better known as the “gas tax.” Pennsylvania’s tax rate of 57.6 cents per gallon was the second-highest in the nation last year.
Democratic state Rep. Bob Freeman of Northampton County said he was “sympathetic to the concept” presented in Coleman’s memo. But, noting that a sales tax exemption and a gas tax offset are two completely different categories in state government, he said, “There are a lot of questions that would have to be answered on the mechanics of it.”
Freeman was against giving the data center tax break from the time it was first pitched, years ago. He was among 26 “no” votes when the exemption program for data centers concept came up for a final vote in the House in 2021, against 177 “yes” votes.
“I didn’t think they needed it. They are a very wealthy interest,” Freeman said on Friday. “It puts a burden on the rest of the tax base.”
Speaking out against the tax break in 2021 was Democratic Rep. Sara Innamorato – now Allegheny County executive – who predicted on the House floor that the bill would “create an out-of-control program that will take away tens of millions of dollars in our budget to fund schools at the state level, and increasing property taxes at a local level.”
Earlier this year, a bill to revoke the data center sales tax exemption was introduced in the House by Delaware County Democratic Rep. Greg Vitali. It is awaiting action in the House Finance Committee.
Among other related proposals, state Sen. Lisa Boscola of Northampton County has introduced bills to temporarily suspend the gas tax and the diesel fuel tax for 60 days, with allowance for the lost revenue to be made up via bond issues. Those bills are awaiting action in the Senate Transportation Committee.
Boscola said on Friday Coleman’s proposal might only take about 2 centers per gallon off the gas tax.
“Simply put, it is not enough,” she said. “My proposal would put more money in peoples’ pocketbook. And I’ll be voting for any proposal that does just that.”
For Freeman, a key concept within Coleman’s memo is where any newly acquired sales tax money from data centers would go. He noted that publicly funded transit systems around the state are in need of money, and transit-funding bills passed by the Democratic-controlled House have gone nowhere in the Republican-controlled Senate.
Coleman said he is not locked into the concept of using any newly acquired revenue stream for gas tax relief.
“I am open to this being an ongoing discussion on where we can use the money,” he said.
Pennsylvania’s reported totals on the amount of revenue lost via the sales tax exemption may be smaller than the actual numbers, according to the advocacy nonprofit Good Jobs First.
The organization said Pennsylvania is among a number of states that do no disclose data center sales tax exemption losses via their Annual Comprehensive Financial Report, which is the “audited public accounting record.” Instead the numbers are covered in a report that is not an official record in terms of accounting acceptance, the organization said.
“Pennsylvania’s data center sales-tax exemption is projected to grow from $41.1 million in FY 2024-25 to $517.2 million in FY 2030-31 — an increase of more than 1,150%,” said Good Jobs First spokesperson Anthony Elmo. “That is exactly the kind of fast-rising subsidy cost that should be fully disclosed in audited financial statements.”
