NORQUIST: Reject Higher Taxes, Regulatory Burden for Data Centers

Recent elections show attacking information infrastructure is not necessarily a winning message
By Grover Norquist & Patrick Gleason

Rhetoric against data centers and policy proposals meant to punish critical information infrastructure with higher taxes and new regulations have been prominent features of American politics in 2026. The ongoing hysteria has seen populist Republicans and progressive Democrats sounding similar alarms – but despite that consensus, recent primaries in a handful of red states suggest it isn’t necessarily a winning message. 

Two other candidates in that primary, Congresswoman Nancy Mace and businessman Rom Reddy, attacked data centers in their unsuccessful campaigns. Mace proposed a one-year moratorium on new data center construction in South Carolina and Reddy said he opposed them in the state completely, calling them a “hoax.” Neither candidate received more than 15% of the vote. 

Rather than attack data centers as his opponents did, Wilson explained the economic and geopolitical importance of expanding information infrastructure. 

“I’d rather have our data controlled out of Berkeley than Beijing to protect your kids, and we can do that without destroying the ACE Basin,” Wilson said during a primary debate, referencing a large, undeveloped estuary system in the state. 

Another primary in neighboring Georgia provides an additional indicator that attacking data centers is not a sure ticket to electoral success. 

Ahead of the Republican gubernatorial primary runoff, Lt. Gov. Burt Jones, who was considered the frontrunner, touted his proposal to end tax incentives for data centers. The demand for such a policy apparently isn’t as high as Jones and his consultants expected; he lost the runoff by about five points. 

More recently, in parts of Wyoming, the August primary results “suggest that anti-data center positions did not win the day,” nonprofit news organization WyoFile reported. 

These primaries show that proposals raising taxes on data centers are not as politically popular as some think, but there is an even more important aspect: Hiking taxes on digital infrastructure is bad policy. 

Often, proposals to raise taxes on data centers are based on the faulty premise that sales tax exemptions for inputs are a subsidy or an unjustified taxpayer giveaway. But the nonpartisan Tax Foundation explained in a December brief that “sales taxes should not be imposed on business machinery and equipment,” adding that this “is equally true whether the business in question is a data center, a retailer, or an insurance agency.” 

There is good reason to exclude data center equipment and other critical inputs from the state sales tax base. These exclusions benefit all consumers by mitigating multiple layers of tax on the same good or service, or tax pyramiding. 

California’s nonpartisan Legislative Analyst’s Office, in its analysis of the software tax hike recently signed into law by Gov. Gavin Newsom, explained how taxes on business-to-business transactions are especially harmful, whether applied to the purchase of software, machinery, jet fuel, servers or data center equipment. 

Despite election results that should serve as a cautionary tale for lawmakers who think it’s popular to impose higher taxes and greater regulation on data centers, proposals to do so continue to proliferate across the country and political spectrum. 

For example, North Carolina’s new budget — passed by the state’s GOP-led General Assembly and signed into law by Democratic Gov. Josh Stein — raised taxes on data centers by repealing the sales tax exemption for data center electricity costs. However, lawmakers wisely maintained the sales tax exemption for data center equipment.  

Democratic New York Gov. Kathy Hochul signed an executive order in July imposing a one-year moratorium on data center construction while the state develops new standards for them. Meanwhile, Democratic Illinois Gov. J.B. Pritzker recently suspended all state tax incentives for data centers. 

At the same time, a first-of-its-kind tax on data center power consumption took effect in Virginia. The state did, however, leave its sales tax exemption for data centers in place, underscoring bipartisan recognition of that policy’s importance.  

In neighboring West Virginia, Republican Gov. Patrick Morrisey is taking a different approach, unveiling a plan last month to “establish state-level oversight and strict development criteria for hyperscale data centers.” 

This framework is intended to encourage responsible data center development in the state, and it would help facilitate the phase out of the state’s income tax. Half of the tax revenue generated through it would be used to offset the cost of income tax elimination.

Looking ahead, the stage is set for a fight over data center sales tax exemptions in Texas when the Legislature comes back into session next year. The Texas Senate Finance Committee held an interim hearing in July to examine the state’s sales tax exemptions for data centers, during which both Republicans and Democrats expressed support for repeal. 

Rather than scale back sales tax exemptions for data centers, Gov. Greg Abbott and Texas lawmakers would do well to maintain and even expand that tax relief to all data centers, along with other industries. 

While no state exempts all business inputs from taxation, the Badger Institute, a Wisconsin-based think tank, notes that “public finance scholars almost unanimously urge them to do so,” and that “most states at least avoid taxing raw materials, machinery and equipment used in production, and other ‘purer’ business inputs.”

Debates happening around the nation show that the appetite among legislators to punish data centers is bipartisan and growing, even as voters in some states are less enthusiastic about it than many political consultants assume. 

However, the strongest argument against these proposals was never about politics. Repealing sales tax exemptions for business inputs like machinery and equipment doesn’t close a loophole. Rather, it embeds tax pyramiding into the cost of the digital infrastructure every consumer and business now depends on. 

Digital services facilitated by data centers are used at nearly every stage of production for everything on the market. As such, repealing sales tax exemptions for data centers won’t just make the states that do so less competitive; it will result in higher consumer prices for almost everything people buy and use.

Grover Norquist is president of Americans for Tax Reform (ATR), an organization founded in 1985 at the request of President Ronald Reagan. Patrick Gleason is ATR’s vice president of state affairs.