Tax questions swirl around Iowa data centers

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(The Center Square) - Revenue from data centers in Iowa has returned millions of tax dollars to local homeowners and governments across the state, but growing opposition to the technology and movements in the legislature could limit expansion.

The Common Sense Institute of Iowa released a report that found data centers in the state contributed $319 million in property tax revenue from 2014 to 2025, with annual payments expected to reach $292 million by 2040.

In 2025, data centers paid $56.1 million in Iowa property taxes. Roughly $3.4 million of that figure went to local homeowner tax bills, according to CSI Iowa. The other $52.7 million went toward local government budgets and other taxpayers.

Ben Murrey, vice president of policy and research at CSI Iowa, said the other funds go toward local government projects.

“It’s better roads, better infrastructure, more parks,” Murrey told The Center Square in an interview. “That means extra revenue for the local government.”

The report found that more data center property tax payments would lower local residents' bills. CSI Iowa estimated every $1 million in data center property taxes lowers a typical homeowner’s property tax bill by $3.92.

Murrey said local governments are the key decision makers when it comes to what relief homeowners and taxpayers see from data center property tax payments.

“Data centers are paying the revenue; they're increasing revenue by a whole lot for these local governments,” Murrey said. “If the people in those local communities want their local governments to pass that on as tax savings rather than spending more on parks and roads or whatever else, then that's a local issue.”

Not all local government leaders and residents in Iowa agree with Murrey. In June 2025, Iowa Gov. Kim Reynolds signed into law House File 976, legislation that narrowed tax exemptions for data centers seeking to build in the state.

Previously, data centers operated on a conditional, tiered tax incentive where data centers could earn up to 50% sales tax exemptions on energy costs more than 10 years after construction of a project. The new legislation, however, would strictly cap tax exemptions for new data center construction at 10 years.

The law conditions exemptions on the population of a town where the data center is built. If data centers are constructed in a city with more than 30,000 people, the electricity exemption is limited for up to 10 years of operations.

For a data center constructed in a city of less than 30,000 people, the exemption is limited to the first 15 years of operation. Iowa Rep. Larry McBurney, D-Polk, highlighted the bill’s usefulness to the growing emergence of data centers throughout the state in a debate on the House floor in 2025.

“This is a good bill, I think all the changes in here are just little things to help clean up the Department of Revenue and also help out some of these data centers that are being built and leased out,” McBurney said.

CSI Iowa does not agree. Murrey said the bill would equate to an uneven tax on data centers and could prohibit future development in the state. He said data centers are already subject to standard sales taxes and should get an exemption, similar to other manufacturers in the state.

“Sometimes exempting something from tax is the proper tax treatment to prevent the same thing getting taxed over and over and over,” Murrey said.

The report estimated states with automatic sales tax exemptions for data centers generate double the product compared to a state like Iowa.

“Exempting data center equipment is consistent with sound sales tax design – the same treatment manufacturers already receive by right – rather than a special tax break," the report reads. "Indeed, data centers in Iowa receive somewhat less favorable treatment than manufacturers, since they must meet investment thresholds to claim an exemption that manufacturers receive automatically."

The report found data centers will reshape the economy in Iowa and across the country. CSI Iowa estimated data centers generated 200 times more property tax revenue than if the same revenue was used for farmland.

Even still, advocacy groups have raised concerns about the environmental impact of data centers. Groups have popped up across the state to oppose development of data centers in local communities.

Hugh Epsey, an advisor for Iowa Citizens for Community Improvement, called for data center development to halt throughout the state.

“This is never going to stop,” Espey said in an interview with Iowa Dispatch. “There’s always going to be some corporate powerhouse coming to us, dressed up real nice and smiling, trying to sell us something. And we have to step back and judge those things based on history and where we want to go.”

Murrey called on states across the country, including Iowa, to adopt more favorable tax incentives toward data centers. He said the incentives will drive up revenues and local government capabilities.

“The data centers are bringing millions upon millions of dollars of extra revenue on top of existing revenue to local governments, so it's a win-fold,” Murrey said. “It's a plus to communities in Iowa from a tax perspective. From a tax revenue perspective, data centers are just a pure plus.”