While Kentucky lawmakers have failed to regulate data centers, they have not failed to offer major tax breaks to developers and tech giants interested in Kentucky for their next hyperscale data center project.
And those tax incentives may end up costing Kentucky millions, if not billions, a new analysis found.
Based on the size of potential Kentucky data centers and average industry costs, KyPolicy estimates Kentucky could end up forgoing more than $1 billion in tax revenue for just a few large data centers.
Kentucky lawmakers approved a statewide sales tax exemption on equipment purchases for data centers, and cleared them to last up to 50 years, in 2025. At the time, it was estimated the tax break would cost about $15 million a year. Thus far, no such exemptions have been awarded yet.
Kentucky’s tax exemption would apply to almost everything data centers would need to buy outside of site development, electricity, office equipment, and the shell building—meaning 85 to 90% of a data center’s costs could qualify for the exemption, KyPolicy said.
In their analysis, KyPolicy focused on four major proposed/confirmed data centers:
- Poe Companies’ campus in southwest Louisville
- TeraWulf’s facility in Hawesville in Hancock County
- TeraWulf’s facility in northeastern Kentucky
- A 1.2 gigawatt center in Mason County
For those four spots, KyPolicy estimates the tax exemption could cost state coffers somewhere between $1.18 billion and $2.2 billion. That’s around enough to cover, on the low end, a year of the state’s share of higher education, or, on the high end, a year of core K-12 education funding.
The potential costs grow if more potential data center projects are thrown into the equation, maxing out at somewhere between $7.2 billion to $8.64 billion. But, as KyPolicy notes, many data centers being considered for Kentucky right now likely won’t come to fruition.
Amid widespread public backlash, more and more cities and counties are enacting data center moratoriums or considering other regulations, making it more difficult to build data centers in certain parts of the state.
And Kentucky simply doesn’t generate enough power to run all of the interested projects. Potential data centers on file with East Kentucky Power Cooperative and LG&E/KU demand around 22 gigawatts of power, KyPolicy noted—more than the 18.4 gigawatts of power all Kentucky utilities generated combined in summer 2024.
Have thoughts on data centers in your community? Help us report on them by filling out our data center survey.
