California establishes data center certification rules to support climate goals

On January 29, 2025, California State Legislature introduced Senate Bill 58, aimed at fostering the growth of data centers within the state while aligning with California's climate goals. The bill proposes a tax exemption for qualifying data center facilities, contingent upon compliance with specific operational requirements.

Key provisions of SB 58 include a structured compliance framework for data center operators, mandating detailed record-keeping of investments and establishing a 60-day window for addressing any noncompliance issues identified by the California Department of Tax and Fee Administration. Should a facility fail to rectify noncompliance within this timeframe, the department has the authority to revoke the facility's certification, resulting in tax liabilities retroactive to the date of purchase for any claimed exemptions.

The bill also delineates the roles of the California Department and the Office of Tax and Fee Administration, ensuring that both entities collaborate to streamline certification and compliance processes. Notably, the tax exemption does not extend to local taxes levied by counties or cities, which has sparked discussions among local government officials concerned about potential revenue impacts.

Debate surrounding SB 58 has centered on its implications for local economies and the environment. Proponents argue that the bill will stimulate job creation and technological advancement, while critics express concerns about the potential for increased energy consumption and its effects on California's ambitious climate targets.

Experts suggest that the success of SB 58 will hinge on the effectiveness of its compliance measures and the ability of the state to monitor the performance indicators outlined in the bill. The California Department of Tax and Fee Administration is tasked with reporting on these indicators annually, beginning March 1, 2026, to assess the bill's impact on data center growth and its alignment with environmental objectives.

As the legislative process unfolds, stakeholders from various sectors will be closely watching the discussions surrounding SB 58, which could set a precedent for how California balances economic development with environmental stewardship in the tech industry.