Minnesota Lawmakers Slash Tech Incentives as Amazon Halts Data Center Project

Minnesota lawmakers slashed a major tax break for tech giants this week, ending a sales tax exemption on electricity for data centers. The exemption has saved companies about $100 million each year since Minnesota started offering these breaks in 2011.

The decision comes just months after Amazon suspended its Minnesota data center plans. The Minnesota Public Utilities Commission voted 4-0 in May to reject Amazon’s request for a special exemption called a “Certificate of Need.” Senator Andrew Mathews said the governor initially supported Amazon’s project before the commission’s rejection. Amazon had argued its 250 backup diesel generators would only serve the data center during emergencies.

Lawmakers kept other tax breaks for data centers. Companies won’t pay sales tax on computers, servers, software, cooling equipment, and energy equipment. But they’ll now pay tax on the electricity they use to power these facilities.

The electricity exemption makes up a small part of current tax breaks but would’ve grown much larger. Electric utilities expect Minnesota’s data center industry to multiply nearly 40 times its current size.

Some legislators called these tax breaks “corporate welfare” for wealthy tech companies that don’t need government help. GOP leaders agreed to roll back the incentives as part of a bigger budget agreement. The decision addresses ethical concerns related to providing significant financial advantages to tech giants while many industries face AI-related disruptions. Critics argued that tech giants shouldn’t get the same breaks that Minnesota originally created for smaller data centers serving manufacturing, banking, and healthcare.

Corporate welfare for tech giants who don’t need taxpayer help

Earlier this year, lawmakers considered expanding these incentives. Bill HF1277 would’ve created a new category for “large-scale data centers” with permanent tax exemptions. The House Taxes Committee tabled the bill in February after 90 minutes of testimony.

The current tax exemption law for data centers was set to expire in 2042. The proposed bill would’ve made equipment and software purchases tax-free at the time of purchase for large centers. It also would’ve removed the expiration date, making the exemption permanent.

Minnesota continues offering energy programs for residents and businesses. The Minneapolis Bonus Rebate Program helps households make efficiency improvements. The program offers rebates up to $14,000 for Green Zone residents who complete qualifying energy efficiency projects. Twin Cities businesses can get city grants for energy upgrades.

The tax change could affect Minnesota’s ability to attract tech infrastructure projects. As neighboring states compete for data centers, Minnesota’s decision to reduce incentives marks a significant shift in the state’s approach to tech development.