Data center tax exemption could give away billions

The placement and construction of data centers are already a hot issue in Wisconsin due to the effects that they may have on communities and costs for local electric customers. But now there’s another way that data centers could prove costly – through a tax break that the state has to encourage this construction.

Wisconsin Watch has a good summary of what seems likely to become an exploding exemption for these projects, and the economic pros and cons of the situation.

Wisconsin is poised to forgo more than $2 billion in sales tax revenue to subsidize hyperscale data centers built by trillion-dollar companies such as Microsoft and Meta.

Data centers were granted a sales tax exemption in the 2023-25 state budget, which was approved by the Republican-controlled Legislature and Democratic Gov. Tony Evers as a way to attract economic development to the state…

State Sen. Jodi Habush Sinykin, D-Whitefish Bay, who requested the estimate, said lawmakers should discuss what the state can get in return for the exemption. She said the exemption could be tied to, for example, requirements to protect the environment.

Habush Sinykin wants the Legislature, which Republicans control, to convene what is known as an extraordinary session to discuss a variety of data center bills, rather than waiting until the next regular session in January.

Sen. Romaine Quinn, R-Birchwood, and Rep. Shannon Zimmerman, R-River Falls, introduced legislation in 2023 that led to the exemption and have proposed expanding it. They did not respond to requests for comment.

Here’s how the Legislative Fiscal Bureau describes who is eligible for the tax break, what types of expenses are able to be written off, and the type of building gets this tax break.

Under [the 2023-25 state budget], a business, and certain contractors contracting with that business, that purchases certain property for a qualified data center certified by WEDC is eligible for state and local sales and use tax exemptions for eligible costs. The exemption applies to three main "eligible costs." The first eligible cost includes the price of property used solely with building and operating the data center. The property includes the sales price of various items for computer servers, networking, energy systems, security systems, and electricity. The second eligible cost includes the price of property associated with building water cooling or conservation systems used exclusively to cool or conserve water for data centers. The systems include the price of various items such as chillers, refrigerant piping, water softeners, fans, ducting, and filters. The third eligible cost includes the price of property sold to a construction contractor that, in fulfillment of a real property construction activity, transfers the property to the owner when it becomes a component of the data center.

A "qualified data center" is one or more buildings or an array of connected buildings owned, leased, or operated by the same business entity (or its affiliate) and for which all of the following apply: (a) the buildings are rehabilitated or constructed to house a group of networked server computers in one physical location or multiple locations in order to centralize the processing, storage, management, retrieval, communication, or dissemination of data and information; and (b) the buildings create a “minimum qualified investment” in this state within five years from the certification date of at least $50,000,000, $100,000,000 or $150,000,000, depending on the population of the county in which the data center is constructed.

The business then enters into a contract with the Wisconsin Economic Development Corportation (WEDC), who certifies that the project is OK for the sales tax exemption. Here is the list of four projects that had received that signoff as of March 2026.

The Microsoft project is located in and around the part of Racine County that Foxconn was supposed to put in numerous facilities nearly a decade ago (yes, it's what replaced the Fox-con). The other 3 projects in the works are:

· Open AI, Oracle and Vantage with the beginning steps of what they claim would be a $15 billion data center campus in Port Washington, which is supposed to be completed in 2028. This is the project that caused such an uproar that the voters of Port Washington approved a referendum earlier this month that would require the voters to OK any tax incentives for future projects of this sort.
· Meta’s $1 billion data center in Beaver Dam, which is expected to be running next year.
· The $347 million Epic Hosting project in Verona that is supposed to get over the $150 million threshold for certification this year.

As of the end of 2024, only the Microsoft data center had enough expenses to be qualified. Then in 2025, Meta's new Beaver Dam data center drew enough expenses to also qualify for the tax exemption, and Epic's data center got close.

Of course, the other data center projects have a few more years to be built, so no major concerns that they won't reach the point of certification. But the sales tax exemption is already being cashed in, to the tune of $10.8 million for 2024, and at least $12.2 million in 2025 (final reports for last year still have yet to be fully submitted and certified).

As the LFB notes, Microsoft is claiming that they will eventually build over $20 billion in data centers at the Foxconn site. If that should all actually happen, a lot more than just the $10.5 million in 2024 and $12.2 million will end up being written off in sales tax for the supplies and work involved.

And if all of these projects do get built for the amount that the businesses say that they will, that’s where the LFB says the tax break could reach 10 figures.

The announcements and planned investments from these four certified companies combine for a total investment of more than $36.9 billion, spread over the life of each project (currently planned to occur between 2024 and 2028). It is estimated that an investment this size would result in $1.5 billion in initial foregone state sales tax revenue. Additional foregone state sales tax revenue of $369 million on an annual basis is estimated once these projects are completed. Expenditures eligible for the state tax exemption would also be exempt from local sales and use taxes, resulting in forgone county, city, and premier resort area tax collections, if applicable.

That would seem to blast a giant hole into tax collections for the future, a lot more than what was anticipated by LFB when this data center tax exemption was originally put into place in 2023.

[The Wisconsin Department of Revenue] indicates that, based on typical capital expenditures for the construction of a data center ($215.5 million) and adjusting for items that would otherwise be subject to sales tax, the exemption would decrease sales and use tax collections by $8,500,000 for the initial construction of facilities, with an annual sales tax reduction of $735,000 related to ongoing operating expenses of such a facility. Although there are no known facilities in the state meeting the minimum qualified investment amounts specified above, it is assumed that the provision is intended to apply to the proposed Microsoft facility, which is locating in the electronics and information technology manufacturing (EITM) zone (Foxconn). The estimated amount of foregone sales tax revenue as a result of this provision is unknown. Further, it is unknown whether WEDC would certify any new qualified data centers to be constructed during the 2023-25 biennium.

As we’ve seen, the investment into these data centers is anticipated to be a lot larger than $215.5 million. And maybe I’m missing it, but I don’t see where the sales tax numbers were adjusted down in the 2025-27 budget to account for the projected explosion of data center activity and the writeoffs that will come from it. Sure, building these data centers would likely result in a boost of construction jobs in the short term, and there is evidence that this is happening over the last year in Wisconsin.

But given that the effective state income tax comes out to something like 5% for the level of income that construction workers get, how do the additional jobs make up for the 5% sales tax exemption for the data center activities, which goes beyond worker salaries? I know, multipliers of economic activity happen with jobs, and that’s a good thing. However, we also know that the added data centers and jobs require added infrastructure costs.

And that gets to the center of the controversy comes with the building of these data centers. There are a lot of costs of added electricity and roads and other needs that may be getting shoved onto communities and local taxpayers, while the corporation gets their costs written off in this sales tax exemption, and is the main beneficiary of the infrastructure.

Which makes last week’s move from Wisconsin’s Public Service Commission all the more interesting.

The Public Service Commission of Wisconsin on Friday unanimously approved a special rate plan for data center-scale customers in We Energies’ service territory. But before doing so, they made a host of modifications to the proposal they said were aimed at protecting other customers.

The decision comes as data centers in Mount Pleasant and Port Washington could double We Energies’ energy demand by 2030. The company is preparing to spend $19.3 billion on new electricity generation over five years, according to testimony filed with the PSC.

A major concern around the country has been that some of the extra cost of establishing and using electrical service for these data centers gets pushed onto homeowners and other smaller residential customers, who end up paying more when they aren’t using more. So this PSC decision requires We Energies to lock in a 15-year agreement with large-scale users that also segregates the costs of those large-scale users.

The energy demand threshold for a customer to qualify for the rate structure was reduced from 500 megawatts to 100 megawatts, the level at which new generation projects typically require PSC approval. The commission opted to make it mandatory for eligible customers to subscribe.

Very large customers would fund and subscribe to portions of multiple new power generation projects, or entire projects. The commission removed a capacity-only subscription option that would have allowed data centers to cover 75 percent of the costs of certain generating facilities.

It’s a start, and we will see if a similar situation comes up as the PSC deals with the rates that Alliant Energy wants as part of the Meta data center project in Beaver Dam.

It’s also clear that what was expected to be a small tax break in 2023 for data centers is something that has grown into a potential budget handcuff for the coming years in our state. It may not mess things up too much this year, but if these data centers do end up getting finished and expanded, it starts to be a major tax exemption in 2027 and beyond. And it tells me that even if the AI companies come through with their promised investments in Wisconsin (instead of them being PR moves to encourage private equity suckers to keep floating them money), that tax break is yet another reason that any AI “boom” that happens is not likely to be something that has a good payoff for most of us.