(The Center Square) – Virginia lawmakers on Sunday unveiled competing budget proposals, with the Senate calling for an end to the state’s sales tax exemption for data center equipment.
The plans, released during the General Assembly’s traditional “Budget Sunday,” highlight differences between the House and Senate on taxes, education, reserves and how the Commonwealth treats its rapidly growing data center industry.
One of the most significant differences involves sales tax exemption for data center equipment.
Because Virginia hosts one of the world’s largest data center markets, changes to the exemption carry significant revenue implications.
Under the Senate proposal, that exemption would expire Jan. 1, 2027. Once the tax break ends, data centers would begin paying sales tax on computer hardware and software purchases.
That shift is projected to generate $317.1 million in new general fund revenue in fiscal year 2027 and $778.2 million in fiscal year 2028.
The jump between years is largely a timing issue. Because the exemption would end midway through fiscal year 2027, the state would only collect sales tax for part of that year. Fiscal year 2028 would mark the first full year of collections.
The House budget takes a different path, relying on revenue growth, balances and other adjustments without tying major spending changes directly to the exemption’s expiration.
Education spending represents another major focus in both proposals.
The House plan includes $1.7 billion in new elementary and secondary education spending. That package features $400.4 million in one-time flexible payments for school divisions, $382.9 million for two 2% compensation increases, and $137.6 million to expand child care subsidy slots.
The Senate proposal emphasizes salary-driven funding adjustments, allocating $190.8 million in fiscal year 2027 and $385.3 million in fiscal year 2028 to support 3% salary increases for funded instructional and support positions.
Senators also link an additional $161.4 million in school funding to projected revenue from the data center exemption ending, reducing the local share of certain K-12 costs.
Higher education funding priorities also differ between the chambers.
The Senate amendments set aside $100 million over the biennium to help institutions limit tuition increases, along with $50 million for undergraduate need-based financial aid. The House budget directs $276.2 million toward affordability, workforce initiatives and institution-specific programs.
Budget negotiators will now work to reconcile differences between the two plans. A final budget must pass both chambers before heading to the governor for consideration.
