Virginia Democrats’ impasse over data centers could lead to first-ever partial government shutdown

Virginia currently leads the nation in data center development with 398 centers built and more than 250 additional developments planned, according to Pew Research Center. The industry has flourished in large part because qualifying data centers are exempt from Virginia’s retail sales and use tax, allowing companies to purchase servers and other equipment tax-free.

“Virginia will have a budget by June 30. I repeat, Virginia will have a budget by June 30,” Democratic state Sen. L. Louise Lucas said Tuesday before a Senate Finance and Appropriations Committee hearing. Lucas has been one of the leading voices calling for an end to the tax breaks.

Senate Democrats are pushing to phase out the state’s sales and use tax exemption for data center equipment beginning Jan. 1, 2027. Supporters argue the move could reclaim billions in lost revenue and redirect the funds toward schools, transportation, and infrastructure.

The dispute came to a head