House taxes committee hears wide testimony on HF1277 to expand data‑center sales tax exemption

At a House Taxes Committee hearing, members heard several hours of testimony on House File 1277 (HF1277), a proposal to expand Minnesota's existing sales-and-use tax relief for data centers by creating a new category of "large scale data centers" and allowing certain exemptions to be taken at the point of sale rather than through the current refund process.

Supporters said the change would reduce administrative burdens for applicants and make Minnesota more competitive for multi‑hundred‑million‑dollar investments. "This is nearly a $100,000,000,000 market, bigger than manufacturing, telecom, or any other industry," Barbara Comstock of NetChoice told the committee, citing national figures and outcomes from Virginia. Business and labor witnesses, including Andy Campbell of the Minnesota Pipe Trades Association and Joel Johnson of the IBEW State Council, said large-scale data centers bring construction jobs and ongoing maintenance work to local economies.

Opponents raised concerns about transparency, fiscal cost and environmental impacts. Aaron Lehi of the Minnesota Center for Environmental Advocacy said the bill "makes the problem of accountability for supersized mega data centers worse by converting the current rebate into a point of sale exemption," arguing the refund-based system provides public visibility into the program's cost. Environmental and clean‑water groups including Clean Water Action, Sierra Club North Star and Vote Solar warned about increased electricity and water demand, and the potential for the exemption to grow substantially as the industry expands.

The bill would add specifications to what qualifies as a "large scale data center," include a certification process administered by the Minnesota Department of Employment and Economic Development, and allow both equipment/software and electricity exemptions to be taken upfront. House Research staff summarized the measure and noted that under current law the existing exemption for qualifying centers and qualified refurbished centers expires on July 1, 2042; HF1277 would not extend that expiration to the newly created large‑scale category.

Proponents cited out‑of‑state examples. Barbara Comstock said Virginia's experience included billions in capital investment and hundreds of millions in local tax revenue, with figures she described as "$24,000,000,000 in capital investment" in one recent year and job and GDP impacts tied to data center development. NetChoice's general counsel, Bart McClellan, disputed some negative projections about energy impacts and said industry tends to address problems as they arise.

Several witnesses emphasized the bill's shift from a refund model to an upfront exemption as a core issue. Under the current refund model, companies initially pay sales tax and later seek reimbursement from the Department of Revenue, creating a paper trail and an auditable record of program costs. Opponents said removing that requirement would limit legislative and public oversight of the program's fiscal impact; multiple testifiers cited official estimates that the program cost has grown from an early projection of roughly $5,000,000 annually to current and projected figures in the hundreds of millions of dollars (witnesses referenced a projected biennial cost of about $230,000,000 for 2026–27).

Environmental and community groups also raised concerns about groundwater and water‑use impacts in counties where proposals concentrate, and about the volume of electronic waste generated by frequent equipment replacement cycles. Vote Solar and Minnesota Interfaith Power & Light warned that rapid increases in electricity demand tied to data centers could slow the transition to clean energy or require significant grid investments.

Labor and utility witnesses framed the bill as an economic development tool. Minnesota Power and the Minnesota Pipe Trades Association argued that large‑scale centers can bring significant capital investment to Greater Minnesota and provide sustained jobs for skilled trades and local supply chains. Several union witnesses said these projects pay substantial wages and contribute income tax and property tax revenue to local jurisdictions.

Committee members asked about competing state incentives, the exact components eligible for exemption in neighboring states, and whether the $250,000,000 investment threshold proposed for the "large scale" category would remain sufficient over time. Minnesota Business Partnership fiscal director Gavin Hansen described administrative delays in the current refund process and said an upfront exemption would align Minnesota with practices in other states and reduce application complexity.

No final vote was taken on HF1277 at the hearing. Committee leaders said they would continue consideration at a future meeting and that members should retain the testimony materials. The bill remains under committee consideration.