A leading Kentucky lawmaker says the General Assembly could revisit tax breaks for data centers in the coming session.
Sen. Robby Mills, a Henderson Republican, says state lawmakers could shorten the life of the tax breaks they previously enacted.
Data center proposals have multiplied across Kentucky in the last year. In a Zoom discussion Tuesday with the state’s Energy Policy Inventory Commission, which Mills helped create, he asked whether the tax incentives were necessary.
“The business has changed so much from the last two years to where data centers are looking for speed to market,” he said, adding, “maybe the speed to market may be even more valuable than a tax incentive.”
In 2025, the legislature enacted a 50-year sales tax break on data center equipment. That includes servers and routers, as well as power, cooling and security systems.
While no data center has applied for the exemption yet, it could cost the state more than originally estimated. An analysis by the Kentucky Center for Economic Policy found four data center projects alone could cost the state $1.1 billion to $2.2 billion in sales tax revenue.
The projects include one in Jefferson County that’s under construction, another in Mason County, and two TeraWulf projects in early stages, one in Hancock County and one near Ashland. Additional sales tax revenue would be lost as the centers update equipment every few years, the analysis indicates.
Mills said 10 years might be a more appropriate limit for the tax incentive than 50.
“So, we're looking hard at those tax incentives and how they need to change, possibly in the future,” he said.
The next legislative session begins Jan. 5.
Earlier this month, Gov. Andy Beshear signed an executive order that, among other things, requires data center developers to pay their “fair share” in state and local taxes.
TeraWulf, which is developing a 482-megawatt project near Hawesville, filed an energy plan with state regulators pledging to meet the governor’s requirements. The company has plans for an even larger data campus on the border of Boyd and Greenup counties.
Rising public concern about electricity costs, water use and air and noise pollution could prompt lawmakers to codify additional protections for residents.
Beshear’s order directed state regulators to deny environmental permits to facilities that would worsen air and water quality or increase bills for electricity customers.
Local governments have enacted data center moratoriums, while some state legislatures have moved to insulate utility customers from data center costs.
Recent public hearings on data center projects statewide have revealed widespread discontent.
“I think you'll see something occur here at the first of the General Assembly session in 27 that will put some guardrails in place,” Mills said.
