Tax exemption for data centers could cost Wisconsin $2 billion; experts say there are ways for the state to recover losses

MADISON, Wis. (CBS 58) -- A tax break for data centers passed by the Legislature and signed into law by Governor Tony Evers back in 2023 is drawing criticism. It was passed as of the 2023-2025 state budget to attract technology investments. New estimates project a significant impact on state revenue.

According to the Wisconsin Legislative Fiscal Bureau, the state is projected to lose more than $2 billion in sales tax revenue due to the exemption for data centers. However, some experts say that without the incentive, those developments likely would not have come to Wisconsin in the first place.

“The state only forgoes the money if the purchases are actually made, right? If the development actually occurs,” said Jason Stein, president of the Wisconsin Policy Forum. “So, if it doesn’t occur and if it wouldn’t have occurred without exemption, the state isn’t actually out any money.”

Wisconsin is among 38 states that have adopted similar tax breaks. These incentives are not limited to data centers, as other types of development projects can qualify as well.

The Wisconsin Policy Forum notes the state may have other ways to recoup some of the lost revenue. Construction workers building the facilities will pay income taxes, purchase goods locally, and the data centers themselves will still pay taxes on utilities and profits.

“For the portion of any corporate profits that are attributable to those data centers, that’s a nexus that may cause Microsoft or any of these other companies to owe corporate income taxes in Wisconsin for a portion of their profits,” Stein said.

Still, experts caution that these projections are only estimates, particularly as data centers remain a relatively new type of development in the state.

“We need to make sure that we are balancing those risks and trying to make it so citizens today, beyond those that are working in the data center industry, are benefiting from these investments,” said Ross Milton, assistant professor at the La Follette School of Public Affairs at UW.

Other industries, including manufacturing, also receive similar tax breaks and may qualify for additional incentives beyond sales tax relief. Officials emphasize that all figures are estimates and could change as projects move forward.

The Wisconsin Data Center Coalition provided a statement but was not available for an on-camera interview:

“The intention of the Sales & Use Tax Exemption was to attract significant capital investments to Wisconsin that provide economic impact far beyond their project sites. The LFB analysis highlighting the possibility of $2 billion in lost tax revenue does not reflect this in their memo, as it was likely not requested. Wisconsin's suppliers and utilities are providing employment (wages) and tax revenue likely 4-5x of the incentive itself. The recent announcements of large-scale expansions by Wisconsin supply chain manufacturers like Generac and Modine are clear examples.”