Data Centers Increasing Tax Revenue: Northern Virginia Case Study
- Brooke Dudley
- Apr 15
- 7 min read
In recent years, Northern Virginia has emerged as a leading hub for data centers, attracting major tech companies and fostering a booming industry. This rapid expansion has not only driven technological advancements but has also substantially increased the region's tax revenue. As home to a significant concentration of data centers, Northern Virginia offers a unique case study on how strategic investments in digital infrastructure can spur economic growth. This resource delves into how these data centers contribute to the regional economy and how their success provides a blueprint for other areas looking to capitalize on the digital economy.
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Data Center Tax Revenue in Virginia
Data centers have become a major source of additional revenue for municipalities nationwide, largely due to their significant contributions to local taxes. Virginia has rapidly emerged as one of the hotspots for data center development in the United States, which has resulted in a significant increase in tax revenue. Data center tax revenue comes from three tax sources: real estate, computer equipment and building fixtures.
Loudoun County
In 2018, Loudoun County had about 13 million sq. ft. of permitted data centers in the county. In 2024, they have 43 million sq. ft. of data centers permitted, which is a whopping 231% increase in five years. Loudoun County now has about 200 data centers, more than any other community on the planet. In fact, Loudoun County's data center market is greater than the next 6 U.S. markets combined.
This has resulted in a significant increase in tax revenue by an estimated $890M. The county’s entire operating budget is projected to be $940M. A data center costs the county $0.04 per $1 of tax revenue received, whereas normal businesses cost about $0.25 per $1 of revenue. As a result of this increased tax revenue, Loudoun County has the lowest real property tax rate in Northern Virginia; about 25% lower than neighboring counties.
Megan Bourke, a Loudoun County administrator, said that planned projects would add an additional 24 million square feet of data centers over the next eight years. If those projects come to fruition, data center revenue in the county could topple $1 billion.
There are numerous other benefits on top of the increased tax revenue that has resulted from data centers in Loudoun County. According to the Loudoun County Department of Economic Development, data centers have created 12,000 jobs. Similarly, data center development in Loudoun County has attracted new businesses, further stimulating economic growth.
Challenges & Potential Solutions
Growth in data center power demand in Virginia is increasing at a rate far exceeding Dominion Energy’s capacity to provide it. Dominion Energy stands as the leading electricity supplier in the Commonwealth of Virginia and the primary provider in Loudoun County. As an investor-owned utility in a regulated state, Dominion Energy is legally obligated to supply power to all its customers in Virginia.
In summer 2022, Dominion Energy found it lacked enough transmission lines and substations for the growing number of data centers in Loudoun County. Consequently, PJM advised an emergency construction program. Initially, Dominion needed to connect power from the existing Loudoun main transmission line to "Data Center Alley." Then, they had to bring more power into Loudoun County and link it to the main line to handle rapid demand growth.
To address the immediate issue, Dominion announced plans to build a loop connecting the main transmission lines to "Data Center Alley" in eastern Loudoun County. Dominion plans a 500/230 Kv line from the Wishing Star to Mars substations in the south and another between the Aspen and Golden substations in the north. A third line will link the Golden substation to the Mars substation, completing the loop. These lines won't bring new power into the county and won't be ready until at least 2028. They don't fully meet the future power demands from the growing data centers.
To address this, in December 2023, PJM accepted a proposal from NextEra to run a new 500 Kv line from West Virginia through western Loudoun County to the main transmission line. This met strong opposition from residents, the BOS, and environmental groups. As a result, in August 2024, PJM decided to reroute the line through the existing north/south right of way. Dominion also plans a new 500 Kv line from the south to connect to the main line, boosting Loudoun's power grid capacity.
Another potential solution that could address the challenge of insufficient energy grid infrastructure is increased transmission capacity combined with onsite power production through microgrids. A microgrid is a compact, localized version of a traditional electricity network, designed to generate, distribute, and manage electricity within a specific area. It comprises distributed energy resources (DERs) like solar panels, wind turbines, batteries, and backup generators, all working in unison to supply power to the community.
As county boards navigate revenue fluctuations, Northern Virginia communities confront contentious projects that residents claim encroach on their homes. A proposed data center along Route 50 in Fairfax has sparked considerable criticism from both community members and airport officials. The main concerns revolve around its potential ecological impact and noise levels.
In Loudoun County, the nine-member Board of Supervisors (BOS) is the senior elected body responsible for land-use planning. Tasked with serving the citizens of Loudoun County, the BOS must address their needs and concerns. Occasionally, the board receives complaints about the loss of green space, the visual impact of massive data center buildings, noise from cooling fans and backup diesel generators, and the environmental impact of their significant power consumption. this pushback was largely generalized. However, the BOS reports that most citizens understand and accepted that Loudoun County data centers keep its real property tax rates about 25% lower than other Northern Virginia neighboring jurisdictions.
Prince William County
According to Price William County, Data centers accounted for 74% of the approximately $3.1 billion in commercial growth in tax year 2023, with approximately 256 megawatts of data center capacity added in tax year 2022. By February 2024, Prince William County will host at least 44 data center buildings, covering a total of 8.3 million square feet. With additional projects under construction, approved, or in progress, the county's data center space could expand to over 80 million square feet.
The surge into Prince William County started roughly a decade ago when land prices in neighboring Loudoun County soared to $2 million to $3 million per acre. Data centers sought more affordable land while maintaining proximity to Loudoun County, as this allowed for data sharing within milliseconds. Additionally, Prince William County's lower property tax rates made it an attractive option.
In their upcoming budget discussions, Prince William County supervisors are considering increasing the data center tax rate by an additional 85 cents, bringing it to $3 per assessed value, as reported by the Prince William Times. This change would generate an extra $27 million for county services and local schools. Currently, data centers and properties zoned for them contribute approximately $114 million annually in tax revenue, a figure that has grown more than tenfold over the past decade.
Challenges & Potential Solutions
Concerns about data center sprawl include its impact on other commercial developments. In May 2022, a consultant for Prince William County projected that the highest demand scenario could lead to the construction of 48 million square feet of data centers over the next 20 years. As a result, county officials have put some limits on data centers and resist unchecked growth. In October 2024, plans to construct three Amazon data centers in Prince William County were put on hold indefinitely by county supervisors. The proposal involved transforming 52 acres at 8552 Ashton Avenue from agricultural and residential zoning to industrial and transportation use. Amazon sought permission to allow building heights of up to 95 feet for the data centers.
On the other hand, data centers are hosted in industrial buildings, which could result in "incompatible uses” next to homes and schools. To address these concerns, Prince William County's fiscal year 2023 budget included funds for a study on creating new zoning ordinances to regulate data centers and other industrial uses. The county is also considering increasing the distance between data center buildings and residential areas, and they have implemented stricter noise regulations.
One potential solution that could address both the challenges of data center sprawl and insufficient energy grid infrastructure in Prince William County is the use of renewable energy sources. Many data center companies are now investing in renewable energy projects or purchasing renewable energy credits to offset their carbon footprint. This not only helps reduce the impact on the environment but can also alleviate concerns about power consumption from local residents.
Critics of data centers raise several concerns: their massive structures often clash with surrounding areas, the constant hum of air-conditioning units, and their enormous energy consumption, all of which have potential environmental impacts. Economically, these developers pay high prices for land, driving up assessments and taxes for local businesses. Furthermore, the data center surge in Prince William County appears to have monopolized much of the commercial and industrial land originally intended for other industries.
Data Centers are Creating Surplus Revenue for Municipalities Across the Country
Data centers have emerged as a significant source of surplus revenue for municipalities across the country, driven primarily by their substantial contributions to the local tax base. As more companies migrate to digital platforms and cloud-based services, the demand for data storage and processing facilities has surged, leading to the establishment of large data centers in various regions. These facilities often require significant capital investment, resulting in increased property tax revenues for host municipalities.
There are various benefits of data center development beyond generating additional revenue. Data centers create numerous high-paying jobs, further boosting local economies through increased income tax revenues and consumer spending. These positive financial impacts help municipalities fund public services, infrastructure projects, and community development initiatives, stabilizing and enhancing their economic health. While there are challenges associated with developing data centers, governments are adopting innovative solutions to effectively address these issues.
LandGate helps government and private property owners contribute to the data center boom and leverage these benefits through our online marketplace. Property owners can list their land for lease for data centers at no cost, providing them with the opportunity to connect directly with data center developers in need of land. This streamlined process also helps municipalities attract data center development by showcasing available properties and simplifying the leasing process. Create a free listing today or book a call with the government team at LandGate to learn more about our services for public agencies:
