Ohio suspends data center tax break as tech firms face pressure to pay the cost to power AI

Ohio, one of the nation’s data center destination hot spots, is suspending a tax break that has been critical to its competition with other states to attract the massive new facilities that power and train artificial intelligence chatbots.

The move Wednesday by Republican Gov. Mike DeWine comes as tax breaks for energy-hungry AI data centers are increasingly playing a role in state budgets and the industry is under pressure to pay the full costs of the vast network of its computing warehouses needed to power AI.

The size of Ohio’s tax break skyrocketed, dwarfing previous projections, as opposition to data centers is sweeping through cities, suburbs and towns there and prompting lawmakers to form a committee to study the impact.

In the meantime, residents are trying to bypass the GOP-controlled Legislature and get a referendum on November’s midterm election ballot that’s designed to permanently ban hyperscale data centers, likely the strictest such statewide ban under consideration in the U.S.

DeWine’s office cited the rising utilization of the tax break and the state Legislature’s new research undertaking to declare a “pause” in granting it to new applicants.

“The governor felt it was the right time to let the citizens know, let businesses know that we’re going to pause on new offers of this tax incentive while that process plays out,” DeWine’s spokesperson, Dan Tierney, said Thursday.

DeWine has stressed that he supports data centers — calling them a critical component in today’s economy — and that the roughly $37 billion in data center-related investments in 2024 and 2025 in the state has been worthwhile.

The state, in 2024, had used previous history in projecting that the exemption would total $136 million in fiscal 2025 and $142 million in fiscal 2026. It was $554 million in 2024 and nearly $1.6 billion in 2025, the state reported.

The resumption of Ohio’s tax break — should it resume — could happen under a new governor: DeWine is term-limited and the race is on to replace him. The Republican nominee, Republican Vivek Ramaswamy — an Ivy League-educated biotech billionaire — likes to talk about turning the Ohio River Valley into the next Silicon Valley.

However, Ramaswamy and Democratic nominee Amy Acton could share the midterm ballot in November with the citizen-led drive to ban the construction of data centers across Ohio. It faces a July 1 deadline to gather more than 400,000 voter signatures.

State tax breaks for the massive data center industry are facing growing criticism by governors and lawmakers.

The cost is likely rising as data center and AI-related investments drive higher consumer spending in the U.S. and tech giants keep boosting their spending commitment to hyperscale data centers.

In Virginia, negotiations between the state House and Senate have been hung up for months on a bid by Senate Democrats to eliminate the roughly $1.6 billion annual tax break.

Thirty-eight states have some form of a sales tax break for data centers, according to the National Conference of State Legislatures.

Many were approved more than five years ago, when data centers were a small, but growing part of the economy, and well before the late 2022 debut of OpenAI’s ChatGPT launched an intensifying buildout of increasingly large data centers.

Ohio’s exemption is fairly broad, applying not only to construction materials, but to the expensive equipment — such as server racks and cooling systems — used in data centers. Operators might buy new server racks every couple of years as the technology improves.

DeWine’s order was a surprise.

Dorsey Hager, executive secretary-treasurer of the Columbus/Central Ohio Building and Construction Trades Council, where union members spend much of their time on data center projects, said he was upset with DeWine and trying to understand the governor’s reasons.

He worried, he said, that developers that were in the midst of trying to finalize plans or permits for a project might have second thoughts.

Lawmakers acknowledged the opposition in announcing their joint data center committee on May 13.

“We’re well aware of initiatives to limit Ohio data center development during this critical point in America’s history,” state Rep. Adam Holmes told a news conference. “This public concern has become a priority issue for us and could have dramatic impact on Ohio and American’s future.”

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