Senator Proposes Federal Excise Tax on Data Centers to Offset Energy Costs

Ron Wyden's white paper calls for reversing the tax breaks 40 states now grant to data center developers, citing $700 billion in facilities under development nationwide.

By the Family Office Real Estate Daily Desk·Thursday, September 10, 2026·2 min read

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What federal tax on data centers is Senator Wyden proposing and how would it affect the industry?

Senator Ron Wyden (D-OR), the top Democrat on the Senate Finance Committee, has released a white paper proposing a new federal excise tax on data center development, calling for rates in the low single-digits. Wyden also calls for repealing tax breaks that 40 states currently grant to data center developers, citing approximately $700 billion in data center facilities now under development nationwide.

Key facts

Senator Ron Wyden (D-OR), the top Democrat on the Senate Finance Committee, said a new excise tax should offset data centers' rising energy demands and address workforce disruptions created by AI tools, according to his white paper.
Wyden said approximately $700 billion in data centers are under development nationwide and that data center construction has quadrupled nationwide in four years.
A Center on Budget and Policy Priorities analysis found that 40 states provide some sort of subsidies or tax breaks for data centers, many in the form of sales tax exemptions on servers and equipment.
Wyden said the proposed excise tax rate should be in the low single-digits and would provide a consistent revenue stream to communities instead of tax breaks.
The libertarian Cato Institute argued the proposed tax could drive data center tax rates over 100% and could end new data center development, risking U.S. leadership in AI and cloud-based technologies.
McKinsey estimates the AI industry will pour $7 trillion into infrastructure by 2030, according to the source text.

Senator Proposes Federal Excise Tax on Data Centers to Offset Energy Costs — Image: editorial illustration · Story sourced from Realtor.com

Sen. Ron Wyden proposed a federal excise tax on data center development to offset rising energy demands and workforce disruption created by artificial intelligence infrastructure, according to a white paper released last month. The Oregon Democrat, the top Democrat on the Senate Finance Committee, said the tax should be in the low single digits and should apply to companies building and benefitting from data center projects.

The proposal would reverse tax breaks that 40 states currently provide to data centers, according to an analysis from the Center on Budget and Policy Priorities, a left-leaning think tank. Many of those breaks come as sales tax exemptions, meaning developers do not pay tax on servers and other equipment they purchase. Wyden said existing state and local tax breaks should be repealed alongside the new federal levy.

Data center construction has quadrupled nationwide in four years, and about $700 billion in data centers are now under development, Wyden said. McKinsey estimates the AI industry will pour $7 trillion into infrastructure by 2030. President Donald Trump supports data center buildouts to help the U.S. compete with China's technology industry, and many Republicans tout their economic benefits.

Public opposition to data centers is widespread. Separate polls released this summer by Fox News, Gallup, and the Washington Post all found about 70 percent oppose building data centers to support artificial intelligence near their homes. Thousands of new data center proposals have brought impacts on the housing market and energy prices, and they have emerged as a midterms flashpoint as the parties contend with how to regulate the industry.

"To address the impacts on communities and the country – higher energy prices, drained resources, and workforce upheaval – we will need new streams of revenue," Wyden said in the white paper. "It is only logical that we look to the companies building and benefitting from these projects to contribute."

Regulatory regimes that appear settled during benign cycles tend to get re-examined the moment a public backlash demands a target, family office advisor Jaf Glazer has noted.

Some states have already moved to pare back incentives. Ohio paused tax incentives for data centers after realizing it was losing billions in foregone taxes, Wyden said. An excise tax would provide a consistent revenue stream to communities instead of foregone revenue from sales tax exemptions, he said.

The libertarian Cato Institute criticized the proposal, arguing it could drive data center tax rates over 100 percent. Taxing revenue rather than business activities could penalize the least profitable data centers, the institute said. "Such a tax could end new data center development and risk stripping the US of its status as the global leader in AI and other cloud-based technologies," according to Cato's analysis.

The Deployment Angle

Family Office Real Estate Daily Desk · our analysis, not the source's

Family offices with direct data center holdings or co-GP positions alongside sponsors should model the impact of a low-single-digit excise tax on projected net operating income. If the source's $700 billion development figure is representative and Wyden's proposal lands at 3 percent of revenue, that implies potential annual federal collections in the low billions once facilities are operational—material enough to compress levered returns on stabilised assets by 50 to 100 basis points, depending on occupancy and contract structure.

The proposal argues for re-underwriting any late-stage data center commitment made in the past 18 months. Sponsors that priced deals assuming perpetual state sales-tax exemptions now face dual headwinds: federal excise on the revenue side and potential state claw-backs on the cost side. Ohio's pause is the leading indicator. Ask the sponsor how the proforma changes if both the state exemption disappears and a 2 to 4 percent federal levy applies from stabilisation onward. If the answer is vague, that is the answer.

Co-investment alongside an operating partner remains the cleanest route if the partner has locked long-term power purchase agreements and can pass through incremental taxes to hyperscale tenants under triple-net or modified-gross leases. Data centers with take-or-pay contracts and contractual escalators are better insulated than those relying on merchant pricing or periodic resets. Direct ownership without an operating sponsor magnifies both the energy-cost risk and the regulatory risk, because the family office carries the full burden of compliance and renegotiation when lease terms roll.

Questions this story answers

01What exactly is Senator Wyden proposing for data center taxes?

Senator Ron Wyden's white paper proposes a new federal 'Data Center Public Investment excise tax' at a rate in the low single-digits on data center development. Wyden also calls for repealing existing tax breaks that 40 states currently provide to data center developers, many of which come in the form of sales tax exemptions on servers and equipment.

02How large is the data center development pipeline that this tax would affect?

Wyden said approximately $700 billion in data centers are currently under development nationwide. Wyden also said data center construction has quadrupled nationwide over four years, and McKinsey estimates the AI industry will pour $7 trillion into infrastructure by 2030.

03What are the arguments against Wyden's proposed data center excise tax?

The libertarian Cato Institute argued the proposed tax could drive data center tax rates over 100% and that taxing revenue rather than business activities could penalize the least profitable data centers. Cato's analysis said such a tax could end new data center development and risk stripping the U.S. of its status as the global leader in AI and cloud-based technologies.

04Are any states already pulling back data center tax incentives?

Ohio has paused tax incentives for data center facilities after realizing the state is losing billions in foregone taxes, according to the source text.

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