Which state to base an AI infrastructure company in

In short

No single state is best for every AI infrastructure company. Virginia has the world’s largest AI data center market and a broad sales tax exemption, but the exemption is under serious political threat and power costs are rising. Texas offers a stable tax break and cheap, independent grid power, but interconnection reforms are tightening and local opposition is growing. Georgia is a fast growing market with a full state and local sales tax exemption, yet the exemption’s cost to the state has lawmakers proposing repeal. Arizona has low investment thresholds and a long running program, but water constraints and a push to end new certifications add risk. Florida now limits its exemption to facilities with at least 100 megawatts of critical IT load, making it viable only for the largest hyperscale projects. For incorporation, Delaware remains the standard for venture backed companies, but a growing movement to reincorporate in Texas or Nevada is challenging that dominance. The decision turns on which layer of risk your project can carry today.

Where are the biggest AI data center markets

Northern Virginia is the largest data center market in the world. It holds 13 percent of global operational capacity and 25 percent of capacity in the Americas. JLARC report on data centers in Virginia Over 600 AI data centers operate in Virginia. Introl Blog, Feb 28, 2026 By the second half of 2025, Northern Virginia had 4,039.6 megawatts of total inventory, 37 percent more than the year before. It had 1,102 MW of net absorption in 2025. CBRE, Feb 26, 2026

Texas is the fastest growing rival. The state has 296 operational AI data centers and over 100 more planned. There are 170 AI data center projects planned or under construction in the state, second only to Virginia. Pew Research Center Dallas-Fort Worth surpassed 1 gigawatt of total supply in 2025, the third North American market to do so after Northern Virginia and Atlanta. CBRE, Feb 26, 2026 The Abilene hyperscale facility will reach about 1.2 GW at full operation, equivalent to powering over 1 million homes. Texas Policy Research, Oct 22, 2025

Atlanta is one of the fastest growing markets. Its total inventory exceeded 1,000 MW, with 2,076 MW under construction in the second half of 2025. CBRE, Feb 26, 2026 Amazon Web Services announced an $11 billion commitment for regional expansion in Georgia. AWS, 2025 QTS operates a major campus there and issued a $2.05 billion CMBS deal backed by assets in Virginia and Georgia. CBRE, Sep 8, 2025, QTS

Phoenix is a primary market with roughly 707 MW of operational AI data center capacity and an estimated 5,340 MW of IT capacity. Goldwater Institute, Jan 2026 Stream Data Centers and QTS operate large hyperscale campuses there. Stream Data Centers, QTS

Florida’s AI data center market is smaller and more targeted at hyperscale users because of its 100 MW threshold. Florida had 30 MW of operating AI data center capacity across 12 facilities as of May 2026, according to Cleanview’s data center tracker.

What sales tax exemptions does each state offer

Virginia, Texas, Georgia, and Arizona all provide broad sales tax exemptions on equipment purchased for qualifying data centers. Florida cut its exemption in 2025 so that only the largest facilities qualify.

Here are the key figures. The table below shows the exempt tax, the minimum investment, the job requirement, and when the exemption ends under current law.

Virginia’s exemption covers computer equipment and enabling software such as servers, routers, chillers, and backup generators purchased or leased for use in a qualifying data center. Va. Code § 58.1-609.3(18) To get the exemption, an operator must sign a memorandum of understanding with the Virginia Economic Development Partnership that sets a minimum capital investment and job creation commitment. The statutory minimums are $150 million in capital investment and 50 new jobs, and qualification is documented through a memorandum of understanding with the Virginia Economic Development Partnership. VEDP Data Center Retail Sales and Use Tax Exemption The exemption also covers replacement and upgrade equipment. It does not cover separately sold software or general building improvements.

Texas exempts the 6.25 percent state sales tax only. For a qualifying data center, local sales taxes, up to 2 percent, still apply. For a qualifying large data center project, the exemption covers both state and local taxes. 34 Tex. Admin. Code § 3.335, Texas Comptroller, Data Centers, Texas Comptroller, Texas Comptroller, Tex. Tax Code § 151.359, Tex. Tax Code § 151.3595 The facility must be at least 100,000 square feet, used by a single occupant, and have uninterruptible power, generator backup, fire suppression, and enhanced physical security. 34 Tex. Admin. Code § 3.335 The exemption covers electricity, cooling systems, generators, servers, storage, networking, racks, software, and related fixtures. An AI data center with a Chapter 313 property tax value limitation agreement is not eligible.

Georgia exempts state and local sales tax on high-technology data center equipment used in qualifying data centers, including servers, networking, software, and related infrastructure. O.C.G.A. § 48-8-3(68.1) It does not cover construction materials permanently incorporated into the building. The exemption sunset is December 31, 2031.

Arizona exempts Transaction Privilege Tax and use tax at the state, county, and local levels on qualifying computer data center equipment. A.R.S. § 41-1519, A.R.S. § 42-5061, A.R.S. § 42-5075, A.R.S. § 42-5159, A.R.S. § 42-6004 The exemption can last up to 10 years after certification, or up to 20 years for a sustainable redevelopment project. Qualified colocation tenants must draw at least 500 kilowatts per month for at least two years. A.R.S. § 41-1519

Florida’s exemption now applies only to facilities with a critical IT load of 100 MW or higher. The facility must also have at least $150 million in cumulative capital investment within five years of starting construction, and each owner or tenant must draw at least 1 MW. Fla. Stat. § 212.08(5)(r) Florida’s 2025 change eliminated the exemption for sub 100 MW AI data centers with no grandfather clause. Existing sub 100 MW AI data centers lose the exemption at their next five year compliance review. Tax alert

Warning Florida’s exemption no longer covers AI data centers that are below 100 MW. If you own or are developing a sub 100 MW facility in Florida, your next five year review will likely remove the exemption. There is no grandfather protection.

How stable are these tax incentives

Every state with a large data center exemption is under pressure to scale it back or end it. The cost to state budgets has grown fast.

Virginia’s exemption cost the state about $1.94 billion in fiscal year 2025, based on $48.6 billion in total investment reported by 56 participating companies. Virginia Dept of Taxation, Jan 2, 2026 The state Senate budget proposes to move the sunset from June 30, 2035 to January 1, 2027. The House budget keeps the 2035 sunset but adds clean energy conditions. As of March 12, 2026, the two chambers were in a conference committee stalemate with no resolution. VPM, Mar 12, 2026, Bloomberg Tax, Mar 16, 2026 A separate bill, SB 253, allows the State Corporation Commission to shift more grid infrastructure costs onto large load customers, which would raise data center rates by an estimated 15.8 percent. Introl Blog, Feb 28, 2026

Texas gave away at least $1.3 billion in data center sales tax exemptions in fiscal year 2026, a figure projected to reach nearly $1.8 billion by fiscal year 2030. Texas Tribune, Apr 8, 2026 The exemption has no statutory sunset, but the comptroller publishes an annual report. So far, no major repeal effort has gained traction, but the growing cost is drawing attention.

Georgia’s exemption cost $474 million in fiscal year 2025, and the state audit department projects $625 million in fiscal year 2026 and $762 million in fiscal year 2027. Georgia DOAA, Dec 2025, Georgia Tax Expenditure Report, FY 2027 The UGA Carl Vinson Institute found that 70 percent of data centers would have located in Georgia even without the exemption, and the Institute estimated forgone state tax revenue of $474.2 million in FY 2025 while state tax revenue generated from data center construction and operations totaled $41.5 million. Georgia DOAA, Dec 2025 Four bills pending as of February 2026 would repeal the exemption outright, suspend new certificates, or accelerate the sunset. Tax alert, Feb 19, 2026

Arizona’s governor proposed ending the data center tax exemption, citing an estimated $38 million corporate handout. Office of the Arizona Governor, Jan. 13, 2026 A bill, HB 2119, would shorten the deadline for new certifications to December 31, 2026. Its status as of May 2026 is unconfirmed.

Florida’s 2025 change is already law. No new temporary certificates will be issued after June 30, 2037. The political fight for Florida seems settled for now, because the threshold is so high that few projects qualify anyway.

At least 38 states offer dedicated data center tax incentives as of early 2026. NCSL, updated Apr 1, 2026 The competition is intense, but the cost is making legislators reconsider.

How does power access and grid reliability compare

Power is the single largest operating cost for an AI data center, and each state’s grid works differently.

Virginia sits in the PJM interconnection region. Dominion Energy projects that DOM Zone summer peak demand will more than double by 2045 and that its DOM LSE summer peak will grow from 18,303 MW in 2025 to 28,963 MW by 2045, driven largely by data centers. Dominion Energy 2025 IRP Update JLARC’s independent forecast found that meeting even half of unconstrained demand would be difficult. Developers have lined up projects that would nearly double the state’s data center capacity. A typical residential customer of Dominion Energy could see generation and transmission costs rise an estimated $14 to $37 per month in real terms by 2040. JLARC RD206, Dec 9, 2024

Dominion created a new rate class, GS-5, for data center customers over 25 MW. In November 2025, the Virginia State Corporation Commission ruled that certain large-scale customers must pay for at least 85 percent of contracted distribution and transmission demand and 60 percent of generation demand, starting January 2027. SCC News Release, Nov 25, 2025 PJM ratepayers across seven states paid $4.4 billion in 2024 for transmission upgrades tied to data center growth, with nearly half the costs hitting Virginia. Utility Dive

Texas has its own grid, ERCOT, with no federal oversight of wholesale rates. Summer 2025 peak hit 83,878 MW ERCOT, Sep 2025. The large load interconnection queue swelled to about 226 GW by late 2025, roughly 73 percent from data centers. Mercom India, Dec 9, 2025 Many individual proposals exceed 1 GW. ERCOT is reforming the queue process. Senate Bill 6, effective immediately, requires large loads (75 MW or more) to disclose duplicative requests, show site control, post financial security (on a dollar per megawatt basis), pay study fees (at least $100,000), and disclose on site backup generation. Energy Alert, July 29, 2025 ERCOT is also moving to a batch interconnection study model (Batch Zero) to group large requests every six months. Final design is expected in September 2026. Argus Media, Mar 20, 2026

Georgia has competitive power costs, averaging 6.5 to 7 cents per kilowatt hour. Mordor Intelligence, 2025 However, the state audit noted that rapid data center growth could cause short-term strain on Georgia’s electric grid and local water and sewer infrastructure. Georgia DOAA, Dec 2025 No major rate restructuring has been proposed yet, but the audit’s findings may trigger action.

Arizona faces significant water constraints rather than power constraints. Phoenix’s large water users must document water sources. Tucson adopted a Large Quantity Water User ordinance in August 2025, and the city of Marana prohibits using potable water for cooling in data centers. Server Country, updated Jan 2026 Power is generally available, but new projects must align with water use rules.

Florida has water management districts that require environmental resource permits and water use permits for facilities with significant cooling water demand. Server Country, updated Jan 2026 No major grid strain has been reported in Florida.

What about community and local opposition

Virginia’s sheer density creates pushback. In Loudoun County, data centers generate 38 percent of the county’s General Fund revenue and nearly half of all property tax collections. Introl Blog, Feb 28, 2026 Still, residents raise noise, water, and land use concerns.

Texas has seen grassroots movements pressuring local officials to block data center projects in San Marcos, Amarillo, College Station, Waco, and Harlingen. Texas Tribune, Apr 8, 2026 Local opposition can delay or kill a project.

Arizona’s water ordinances are a direct legal barrier. Tucson ended negotiations for a large scale data center project known as Project Blue in August 2025 and instead began crafting a citywide regulatory framework that treats large data centers as a generating system land use not permitted by right. Server Country, updated Jan 2026

Where should an AI infrastructure company incorporate

Most venture backed companies incorporate in Delaware as a C corporation. Delaware does not tax out of state corporate income, has no state sales tax, and does not tax stock held by non residents. The Delaware Court of Chancery is the nation’s preeminent business court, with judges who are corporate law experts, no juries, and a vast body of precedent. Delaware Corporate Law The 2025 DGCL amendments added safe harbors for controlling shareholder transactions, codified a definition of controlling shareholder, and limited books and records requests under Section 220. DGCL § 144, DGCL § 220

A growing number of companies, 18 proposed in 2025, have left Delaware for Nevada (13) or Texas (2). Tesla and SpaceX moved to Texas. Roblox moved to Nevada. Andreessen Horowitz announced it would reincorporate to Nevada and urged portfolio companies to consider it, citing concerns about Delaware court decisions becoming less predictable. Andreessen Horowitz, July 9, 2025 Nevada and Texas both amended their corporate laws in 2025 to compete. Nevada adjusted its statutory business judgment rule, defined controlling shareholders, and established a specialized business court, while Texas codified its business judgment rule and adopted similar corporate law amendments. Glass Lewis, Oct 9, 2025

For a data center operating company, the incorporation state is usually separate from the operating state. If you incorporate in Delaware but build a data center in Texas, you must foreign qualify in Texas and meet its reporting requirements. That adds modest annual fees and compliance costs. The benefits of Delaware law, familiarity to investors, established precedent, and the Court of Chancery, still drive most startups to choose Delaware. If your company has a controlling shareholder or expects contentious governance disputes, the evolving safe harbors in Texas or Nevada may be worth a closer look. But for most, Delaware remains the default and is still accepted by all major investors.

How to choose the right state for your project

Start with your project’s scale. Hyperscale deals of 100 MW or more can go almost anywhere, but Florida’s threshold makes it an option only for the very largest. Smaller projects should look first at Georgia or Arizona, where the investment thresholds are lower. If you need more than 200 MW, Virginia and Texas are the deep markets with existing infrastructure.

Then check the tax certainty you need. Virginia’s exemption may end as soon as January 1, 2027 if the Senate budget prevails. Georgia’s exemption faces repeal bills that could accelerate its sunset. Arizona’s program may close to new applicants after 2026. Texas has the most stable incentive, without a sunset, but local tax still applies. Florida’s exemption is stable because it is already so narrow.

Next, model your power costs. In Virginia, the Dominion rate changes will increase data center costs meaningfully. In Texas, power is cheap but you face interconnection delays and the risk of mandatory curtailment during grid emergencies. Georgia offers competitive rates for now, but strain may change that. Arizona’s power is generally available, but water restrictions could limit cooling options and raise costs.

Consider local risk. Texas has several cities that are rejecting data center projects. Arizona’s water ordinances can block or delay a project. Virginia’s density means near term power delivery may be constrained. Georgia is still welcoming, but that could shift as the state sees the exemption’s budget impact.

Finally, decide on incorporation. For most, Delaware is safe. If your company is controlled by a single founder or investor who wants more statutory protection, Texas or Nevada might be worth discussing with counsel.

Key takeaways

• Virginia leads in market size but carries the highest tax and power cost risk right now. The exemption may end in 2027.
• Texas has the most stable sales tax exemption and cheap power, but local taxes still apply for standard projects (large projects may be fully exempt) and the interconnection queue is extremely long.
• Georgia’s exemption is the most generous because it covers state and local tax, but it is expensive for the state and several bills aim to repeal it.
• Arizona has lower investment thresholds and broad tax coverage, but water constraints and a possible early end to new certifications make it risky for greenfield projects.
• Florida is only viable for hyperscale facilities of 100 MW or more. Smaller operators lost the exemption with no grandfather protection.
• Delaware remains the standard for incorporation, but Texas and Nevada are real alternatives if you want more statutory predictability for controlling shareholder transactions.
• Foreign qualifying in the operating state is a minor cost for a Delaware corporation and should not drive the incorporation decision alone.

Frequently asked questions

Q:What is the best state for a small AI data center project under 50 MW?

A:Georgia or Arizona are the most practical. Georgia’s threshold is as low as $25 million in small counties, and Arizona’s is $25 million outside Maricopa and Pima County. Virginia and Texas have higher investment and job requirements that may be harder for a small project. Florida requires 100 MW, so it is off the table.

Q:Is the Virginia sales tax exemption going away?

A:It might. The Senate wants to end it January 1, 2027. The House wants to keep it until 2035 with added clean energy conditions. The two chambers had not resolved the difference as of March 2026. VPM, Mar 12, 2026 The outcome is unknown.

Q:Does Texas exempt local sales tax?

A:Not for standard projects. For qualifying data centers, Texas exempts the 6.25 percent state sales tax only and local sales taxes up to 2 percent still apply. For qualifying large data center projects, the exemption applies to both state and local sales taxes. 34 Tex. Admin. Code § 3.335 In contrast, Georgia exempts state and local tax fully.

Q:If I incorporate in Delaware, do I pay Delaware tax on my Texas data center income?

A:No. Delaware does not tax out of state corporate income. You will pay Texas franchise tax and any other Texas taxes, but no Delaware income tax on that income. You will owe Delaware’s annual franchise tax and must foreign qualify in Texas.

Q:What happened to Florida’s smaller data centers that lost the exemption?

A:They lost it with no grandfather protection. The law requires a five year compliance review. The first review after the 2025 change will result in the exemption being revoked for facilities below 100 MW. Fla. Stat. § 212.08(5)(r), HB 7031 bill summary

Q:Does Arizona still give a 20 year exemption?

A:Yes, for a sustainable redevelopment project, which may be a newly constructed facility with at least a $200 million investment and green building certification or an existing facility that meets vacancy or redevelopment criteria. Arizona Commerce Authority, A.R.S. § 41-1519 Standard projects get up to 10 years.

Q:Which state has the lowest power rates?

A:Texas has among the lowest wholesale electricity prices in the country, but the effective cost for a large new load may rise with interconnection delays and SB 6 financial security requirements. Georgia Power’s rates are also competitive. Virginia’s costs are rising fastest.

Q:Are there states that require renewable energy for data centers?

A:A bill in Virginia, SB 1196, would have required a power usage effectiveness of 1.2 or better and 90 percent carbon free electricity by 2028 to keep the exemption, and would have banned diesel backup after 2030. It did not pass. BillTrack50 Other states have considered similar proposals, but no major clean energy mandate tied to a tax exemption has passed in any of the five states reviewed here.

Q:Can I use an AI data center exemption in more than one state at the same time?

A:Yes. The exemptions are independent. A company can have qualifying data centers in multiple states and claim the exemption in each, provided it meets each state’s separate requirements.

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.