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Evergreen Ledger

ESSB 6231

Signed

Senate

Data center tax exemptions

Expiring tax exemptions for data centers. (REVISED FOR ENGROSSED: Removing a tax exemption for the replacement of equipment for data centers.)

How does a bill become law?
  1. Introduced: The bill is filed and assigned a number.
  2. Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
  3. Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
  4. Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
  5. Governor: The Governor reviews the bill and decides whether to sign or veto it.
  6. Signed: The bill has been signed into law.
Introduced: February 18, 2026
Last Action: April 1, 2026
Status: C 266 L 26
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AI Analysis

This analysis was generated by AI and may contain errors. It is not legal advice. Always refer to the official bill text for authoritative information.
People & CommunitiesPeople-leaningCorporate & Wealthy Interests

This bill ends Washington’s tax exemptions for data center equipment and infrastructure, effective July 1, 2026, to generate revenue for the state’s general fund. It phases out exemptions for both new and refurbished data centers, tightens eligibility rules, and adds requirements for job creation, sustainability, and environmental responsibility.

  • Eliminates the tax exemption for sales and use taxes on eligible server equipment and power infrastructure for new data center projects starting July 1, 2026, and for refurbished data centers starting July 1, 2026 (for RCW 82.08.986) and July 1, 2028 (for RCW 82.08.9861).
  • Ends issuance of new exemption certificates for refurbished data centers after July 1, 2026, and sets final expiration of all exemptions on July 1, 2048 (for RCW 82.08.986) and July 1, 2038 (for RCW 82.08.9861).
  • Requires qualifying businesses and tenants to meet job creation thresholds (e.g., 3 family wage jobs per 20,000 sq ft of server space) and maintain them for up to 6 years, or face repayment of previously exempted taxes.
  • Mandates sustainability certification (e.g., LEED, Energy Star) for new data centers within 3 years of operation, with a 10% penalty and loss of exemption if not met.
  • Adds reporting requirements, including annual performance reports with construction firm names and employment levels, and requires data center operators to report on environmental mitigation efforts (e.g., renewable energy use, water conservation).

Who is affected

  • Data center owners — Data center operators who own facilities and seek tax exemptions for equipment and infrastructure; they must meet strict eligibility criteria including location, size, job creation, and sustainability standards, and may lose exemptions if requirements are not met.
  • Data center tenants — Companies that lease space in data centers and install their own server equipment; they must also meet job creation and sustainability requirements and may be subject to repayment of taxes if requirements are not met.
  • State and local governments — State and local governments, which would lose tax revenue from the exemptions but gain new revenue from removing them, with funds going to the state’s general fund to support public services.
  • Data center employees — Workers in data centers, as the bill ties exemptions to job creation (specifically family wage jobs with health insurance), potentially influencing employment levels and wages in the sector.
Effective: July 1, 2026Fiscal impact: The bill removes existing tax exemptions for data center equipment and infrastructure, which is expected to increase state revenue by $1.2 billion over the 2025–2027 biennium, according to the Office of Financial Management, with funds going to the state’s general fund.
Model: Intel/Qwen3-Coder-Next-int4-AutoRoundGenerated: Mar 19, 2026 at 9:47 PM

Pro/Con Analysis

Stronger case for benefits

Potential Benefits (5)

  • Mandating sustainability certification (e.g., LEED, Energy Star) within three years of operation for new data centers will reduce energy and water consumption, lowering carbon emissions and strain on local water resources—benefiting communities near data centers that have experienced increased water use and grid stress.

    EnvironmentPeopleRef: Sec. 2(4)(a); Sec. 3(4)(a)

  • The family wage job requirement—wages ≥125% of county per capita income and health insurance coverage—will raise labor standards in the data center sector, increasing wages and benefits for workers in counties where these facilities are located, especially in the Puget Sound region.

    Business & EmploymentPeopleRef: Sec. 2(3)(a)(i); Sec. 3(3)(a)(i)

  • Generating $1.2 billion over two years for the state general fund will support public services like education, healthcare, and transportation—benefiting everyday Washingtonians who rely on those services, especially low- and middle-income households.

    FinancialPeopleRef: Fiscal Impact (Summary); Sec. 1 (findings)

  • Encouraging water conservation, renewable energy procurement, and industrial symbiosis projects will reduce environmental externalities from data centers—such as thermal pollution and high water withdrawal—helping protect local watersheds and ecosystems.

    EnvironmentLean peopleRef: Sec. 2(5); Sec. 3(5)

  • Annual reporting of construction firm names and employment levels improves transparency and enables local governments to better track economic development impacts, supporting more informed planning and workforce development initiatives.

    Local GovernmentLean peopleRef: Sec. 2(6); Sec. 3(7)
Potential Concerns (5)

  • Ending new exemption certificates for refurbished data centers after July 1, 2026 eliminates a previously available tax incentive for retrofitting existing facilities, potentially reducing investment in upgrading older infrastructure—especially for mid-sized operators seeking to modernize without building new from scratch. This could slow adoption of more efficient hardware and cooling systems in non-urban counties where refurbishment was a primary path to eligibility.

    Business & EmploymentRef: Sec. 2(1)(e)(iii); Sec. 3(1)(c)

  • The job creation requirements—3 family wage jobs per 20,000 sq ft of server space, with wage thresholds tied to county-level per capita income—may be difficult for smaller tenants or operators to meet, especially in rural counties where average wages are lower but housing and utility costs remain high. This could discourage participation by smaller cloud service providers or regional colocation firms, limiting competition and innovation.

    Business & EmploymentRef: Sec. 2(3)(a)(i); Sec. 3(3)(a)(i)

  • The 10% penalty and automatic cancellation of exemption for failure to meet sustainability certification requirements creates financial risk for operators—particularly smaller ones—without providing technical assistance or grace periods for compliance, potentially forcing exits from the market or shifting operations out-of-state.

    Business & EmploymentLean peopleRef: Sec. 2(4)(c)(i); Sec. 3(4)(c)(i)

  • Requiring repayment of previously exempted taxes (plus interest) if job or sustainability thresholds are not met places a significant financial burden on operators during downturns—e.g., recessions or supply chain disruptions—despite hardship exceptions being discretionary rather than guaranteed, potentially triggering bankruptcies or facility closures.

    FinancialLean peopleRef: Sec. 2(3)(d)(i); Sec. 3(3)(d)(i)

  • While the bill increases state revenue, it does not provide any dedicated funding to local governments for lost local option tax revenue (e.g., county or municipal sales taxes on data center equipment), potentially straining municipal budgets—especially in rural counties where data centers were a key source of taxable activity and jobs.

    Local GovernmentPeopleRef: Sec. 2(1)(e)(ii); Sec. 3(1)(c)

Who Is Most Affected

Large data center operators (Tier-1 hyperscalers)Mixed Impact

Large data center operators (e.g., Amazon, Microsoft, Google) are well-positioned to meet job and sustainability thresholds and absorb compliance costs; they may benefit from long-term operational stability but face near-term compliance burdens and reduced tax savings. Impact: mixed.

Mid-sized and regional data center operatorsNegative Impact

Smaller regional colocation providers and refurbishment-focused firms may struggle to meet job creation and certification requirements, especially in rural counties with lower wage baselines. Many may exit the market or delay projects. Impact: negative.

Data center tenants (cloud users, SaaS firms)Mixed Impact

Tech companies leasing space (e.g., SaaS providers, cloud users) may face higher colocation costs as operators pass through tax liabilities; however, they benefit from more sustainable infrastructure and potentially more stable service offerings. Impact: mixed.

Local governments in rural countiesNegative Impact

Rural counties (e.g., Grant, Yakima, Spokane) that hosted refurbished data centers under the old program may see reduced investment and local tax revenue, despite new state funding. Local governments lose local option tax revenue with no replacement. Impact: negative.

Data center employeesMixed Impact

Workers in data centers—especially in Puget Sound—may benefit from higher wages and health benefits due to the family wage requirement, but job growth may slow if operators scale back due to compliance costs. Impact: mixed.