Tax Break For Data Centers Could Be On Chopping Block In PA

Spotlight PA is an independent, nonpartisan, and nonprofit newsroom producing investigative and public-service journalism that holds power to account and drives positive change in Pennsylvania. Sign up for our free newsletters.

By Stephen Caruso | Spotlight PA

Taxes aimed at the tech industry are on the table as Pennsylvania lawmakers negotiate the upcoming budget and look for ways to help balance the commonwealth’s shaky books.

Two options have been floated, including eliminating the state’s sales tax exemption for purchases related to building and maintaining data centers. The commonwealth is projected to miss out on $2 billion in accumulated tax revenue by 2031.

The other proposal would extend the state’s 5% gross receipts tax to firms that sell digital ads. That tax could bring in hundreds of millions of dollars a year in new revenue, although estimates vary.

Such a fiscal shot in the arm would aid policymakers as they tackle Pennsylvania’s longstanding budgetary woes. The commonwealth is on track to spend around $5 billion more than it makes in revenue for this fiscal year. That kind of deficit spending has become routine in recent budgets, and led to cash reserves being halved from $14 billion two years ago to roughly $7 billion today.

Democratic Gov. Josh Shapiro has pitched a $53.3 billion budget that would send more money to the state’s poorest schools and bump funding for struggling public transit systems. Although the proposal doesn’t include any major new programs, it would still require the state to dip into its rainy day fund.

Tech taxes are a new direction for lawmakers stymied by partisan and ideological differences when trying to find new revenue — a dynamic exacerbated by special interests. Efforts to regulate and tax recreational marijuana and slot-like skill games have foundered in recent years.

Supporters of creating a digital ad tax and ending the data center exemption argue the revenue would come out of the pockets of giant tech companies rather than small businesses and everyday Pennsylvanians.

“These are people who are making tremendous profit, record-breaking profit, right now. That’s who should be paying this tax,” said state Rep. Elizabeth Fiedler (D., Philadelphia), a vocal progressive and prime sponsor of the ad tax.

Tech taxes have also found support from individuals across the ideological spectrum.

Two conservative Republicans — state Rep. Jamie Walsh of Luzerne County and Sen. Jarrett Coleman of Lehigh County — have jointly introduced a bill to repeal the data center tax break and use the money to reduce the cost of gas.

In a memo seeking support, they said the state should not “continue to give a special tax incentive to the thriving data center industry.” Coleman told Spotlight PA, “If [tech companies] are still dead set on showing up, they should have to pay down the gas tax for Pennsylvanians.”

That tech firms are raking in dough isn’t up for dispute. Amazon, Meta, and Google all made tens of billions of dollars in profit in 2025, per Forbes, and policies aimed at reining them in have become increasingly popular in both red and blue states.

It’s unclear if that means Pennsylvania’s divided state legislature will actually pass the tech measures on the table, but early signs indicate that both major parties are weighing the option.

A bill to levy the digital ad tax passed the Democratic-controlled state House 139-63 on Wednesday. It was unanimously amended to direct any revenue raised to provide property tax relief for older homeowners.

The bill is now with the state Senate. The upper chamber’s majority leader, Joe Pittman (R., Indiana), didn’t rule out an ad tax or an end to the data center exemption in an interview last week.

“There are concerns about that [data center sales] tax provision, and it’s certainly possible that discussion on what the right approach is will unfold in the weeks ahead,” Pittman said. He floated closing some unspecified sales tax exemptions as a revenue source in 2025.

Both efforts would require defeating the opposition of powerful interests who back the status quo. In- and out-of-state business advocacy groups oppose a digital ad tax, arguing that giant tech firms would pass on costs to businesses through higher advertising costs.

And data centers are not only popular with tech firms but with the trade unions whose members build them. Those unions are key Democratic allies, so an effort to end the data center exemption would likely divide the party.

Shapiro has offered an alternative to totally axing the exemption: He wants to make it contingent on data center developers following stricter transparency, environmental, and energy-use standards.

State House Majority Leader Matt Bradford (D., Montgomery) said the chamber would “expeditiously” pass such legislation. The party isn’t unified on that approach, though — almost 30 state House Democrats are backing a bill that would repeal the exemption.

A June 30 deadline

Conversations about these taxes are happening amid growing national backlash against the tech industry and income inequality, and a desire to tackle the ongoing affordability crisis and backfill pending federal cuts by the Trump administration.

“Too many in Pennsylvania are being told to accept scarcity while wealth is concentrated at the top,” Gregory Edwards, a Lehigh Valley pastor and leader of the leftist POWER Interfaith coalition, said at a Capitol rally to support the digital ad tax last week. “We reject that plainly.”

June is also traditionally when lawmakers push new policy ideas ahead of the budget deadline. A handful of top legislative leaders and staff will meet behind closed doors to hammer out a deal in private with little public input.

Democrats who control the state House have advanced a spending plan that matches Shapiro’s budget pitch. Bradford told Spotlight PA that the plan, which would increase state spending by approximately 6%, “reflects House Democrats’ priorities.”

Republicans who lead the state Senate have not released a plan publicly, but Pittman said the caucus’ main priority is “very simple and direct — to minimize the growth of spending in our state budget.”

He has an eye on line items he thinks are too costly. For instance, he noted that Shapiro’s budget, even after closing two prisons last year, increased funding for the Department of Corrections.

“That, to me, doesn’t compute,” Pittman added.

There have been bumps in the negotiating road in recent years. State House Democrats and Shapiro have criticized Senate Republicans as unable to compromise on issues like a minimum wage increase or legalizing recreational marijuana. Meanwhile, Republicans have called Democrats’ budgets unrealistic and questioned whether Shapiro and his party are on the same page.

The commonwealth’s last four budgets have been late — two by more than 100 days.

Two sources with knowledge of closed-door talks told Spotlight PA that both sides have traded budget proposals. Though the statutory deadline for a deal is June 30, the impact of a late deal often isn’t felt until a few weeks after the deadline.

EXCLUSIVE INSIGHTS… If you liked this reporting from Stephen Caruso, subscribe to Access Harrisburg, a premium newsletter with his unique insider view on how state government works.