Ohio data center tax break cost $1.4 billion more than expected in 2025

Ohio’s biggest tax break for data centers is more expensive than once thought. A lot more expensive.

In 2024, the state sales tax exemption for data centers cost Ohio about $555 million in revenue, four times more than the state Department of Taxation forecasted.

In 2025, it cost a whopping $1.6 billion, eleven times more than the original estimate of $136 million

And that’s to say nothing of the local sales taxes – another $166.8 million in lost revenue in 2024, according to new actual cost data provided this week by Ohio Department of Taxation spokesperson Andrea Lannom.

The tax department’s biennial forecasts of the size of the controversial tax exemption shared with the public amount to jarring lowballs of the actual figure, even when accounting for the imprecise nature of budget forecasting and the novel technology at hand.

And the massive savings, realized as an exemption to Ohio’s 5.75% statewide sales tax, flow to some of the biggest companies on the planet, including Meta (Facebook), Alphabet (Google) and Amazon, all of which have recently built or are building arena-sized data center warehouses here.

In 2024, the sales tax exemption cost Ohio $554.9 million, Lannom said. One year later, that snowballed to $1,568,700,00.

Lannom said the department could not share data prior to 2024 out of a privacy concern because less than 10 companies claimed the exemption at the time. This, coupled with the accelerating use of the tax break, hampered department estimates.

“We are unable to provide any calculated actuals prior to 2024 due to taxpayer confidentiality,” she said. “There has been significant growth in the data center industry and in the use of the data center exemption since the publication of the Tax Expenditure Report in November 2024.”

Debating data centers with inaccurate forecasts

State lawmakers rely on tax department predictions when crafting Ohio’s two-year operating budgets. And in the most recent budget legislation, lawmakers voted to end the data center tax break to help finance another round of income tax cuts. Gov. Mike DeWine vetoed the proposal, insisting the tax exemption is needed to lure data center developers to the state.

A DeWine spokesperson agreed to look over the new data from the Department of Taxation but declined further comment.

House Speaker Matt Huffman, a Republican, has said he would like to muster the three-fifths vote required to override DeWine’s veto but has indicated he lacks the political support.

The new information vindicates the claims of Zach Schiller, a progressive economist with think tank Policy Matters Ohio, who has long maintained that the tax department estimates on data centers have been lowballs.

But even he was surprised by how big the tax break had gotten, he said in an interview. He worried whether Ohio is legally able to get out of its long-term contracts with the developers, or whether lawmakers will at least halt any new tax breaks.

“The thing that’s problematic is, what can be done about this?” he said.

The scope of the tax department’s 2024 underestimate was first reported by News 5 Cleveland.

Tax exemption dates back to 2010s

Republican lawmakers established the tax exemption in the early 2010s to lure technology companies to Ohio. The era predates the modern hyperscale and electric-intensive data centers that facilitate the artificial intelligence and cryptocurrency boom.

For facilities that cost $100 million or more to build, the exemption allows developers to waive up to 100% of Ohio’s 5.75% sales tax for up to 15 years. And it can apply to capital-intensive, private natural gas plants some developers are building to fuel their operations.

Use of the exemption started in 2016 at a modest $4.4 million scope in an era of far more humble data center operations. But since then, the project ambitions have ballooned and the math has added up quickly. Consider that federal officials recently touted what they described as the world’s largest data center in Scioto County, expected to cost $33 billion to build.

Data centers have grown controversial in the U.S. given the exponential demand growth they place on the electric grid, the resulting increase in prices, the environmental concerns associated with the diesel generators and natural gas-fired power plants they keep on site, and their public subsidization versus the lack of post-construction jobs they offer.

A recent report from the Ohio Chamber of Commerce estimated data centers have received $2.5 billion in public subsidies (including local property tax abatements) between 2017 and 2024. The same report states they’ve contributed $3.7 billion toward Ohio’s GDP if you include “direct” and “indirect” inputs.

While lawmakers haven’t overridden DeWine’s veto of the data center tax break, they have responded to the political pressure in part by forming a special legislative committee broadly focused on data centers.

Rep. Adam Holmes, a Muskingum County Republican and chair of the committee, said he didn’t have any immediate knowledge on how or why the Ohio Department of Taxation’s numbers were so far off, but said the panel will soon field testimony from state officials.

“I mean, that is the whole purpose of it. Let’s figure out what the heck is going on, and do it in a public forum,” he said. “But that tax (break), that needs to be explained.”

Sen. Kent Smith, a Cuyahoga County Democrat, said the new figures from the tax department means the data center tax exemption is one of the most lucrative incentives the state offers.

“There’s not a lot of things that take over $1 billion of our money, but holy crap the biggest tech companies in the world are one of them,” he said. “What might have been a well-intended privacy concern (from the tax department) just can’t hold water to $1 billion in tax breaks going to some of the biggest corporations in the world.”

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This story was originally published by Signal Ohio and distributed through a partnership with The Associated Press.