(The Center Square) – Virginia has yet to finalize a state budget for 2026-27, with negotiations stalled over a major policy dispute tied to the commonwealth’s data center industry.
Lawmakers left Richmond in April after a brief session, with differences still unresolved between the Senate and House of Delegates as they work to complete the state’s two-year spending plan.
At the center of the impasse is Virginia’s sales tax exemption for data centers, a policy estimated to reduce state revenue by between $1.6 billion and $1.9 billion annually, based on state budget analyses.
Virginia’s data center exemption is written into state law and allows companies to avoid paying sales and use taxes on certain equipment, software and infrastructure used to operate data centers. To qualify, companies must invest in Virginia facilities, create jobs and enter agreements with the Virginia Economic Development Partnership outlining those commitments.
The two chambers have taken sharply different approaches.
The Senate budget would eliminate the exemption beginning Jan. 1, 2027, redirecting the revenue to priorities such as education, transportation and local government funding. Supporters say the move could return about $1 billion to the state in the first year.
The House budget keeps the exemption in place through 2035 but adds new requirements for companies to qualify, including stricter energy and environmental standards. Industry groups have warned those conditions could be difficult to meet and could limit which facilities remain eligible.
That divide remains a central issue preventing lawmakers from reaching an agreement.
House Republicans say the data center tax exemption continues to be a primary sticking point in negotiations.
Senate Finance and Appropriations Chairwoman Louise Lucas, D-Portsmouth, said discussions are ongoing but pointed to disagreements with the House and governor.
“I’m still working to get a budget,” Lucas wrote in a social media post. “It is slow going trying to get the House and the governor to see the light.”
Local governments and school divisions rely on state funding decisions when finalizing their own budgets. In Hanover County, officials said they plan to move forward and adjust later if needed once a state budget is finalized.
“Our school board is scheduled to adopt the fiscal year 2027 budget at its meeting next week and will, if needed, make any further adjustments based upon the final state budget,” said Chris Whitley, assistant superintendent for Hanover County Public Schools.
Virginia must have a balanced budget in place by June 30, when the current fiscal year ends.
Negotiations are expected to continue ahead of that deadline.
The Center Square was unsuccessful prior to publication getting comment from Democratic Gov. Abigail Spanberger’s office and legislative leaders.
