The industry-backed data center bill making its way through the Colorado Capitol would raise taxes on the poorest Coloradans in its bid to provide large tax incentives to tech companies, according to nonpartisan staff charged with analyzing proposed legislation.
In the fiscal year that starts in July, staff estimate House Bill 1030 would reduce the state’s general fund revenue by $29 million because of the proposed 20- to 30-year sales and use tax exemption offered to data center companies. That decrease would trigger a reduction in tax credits available to Coloradans with low incomes to the tune of $106 million that year, according to the estimate.
The bill’s Democratic sponsors say they didn’t intend to raise taxes on low-income households to fund the tax breaks. But it could happen anyway, because of how the legislature designed a recent expansion of the state’s social safety net.
In 2024, the state legislature passed a law redirecting more than $1 billion in taxpayer refunds to low-income families through two tax credits: the earned income tax credit, and a tax credit for families with children.
But the credits were designed to shrink when the state budget isn’t growing fast enough to cover their cost. That’s the case right now, according to legislative staffers, who say any bills this year that decrease revenue by at least $28.1 million will reduce the credits, effectively raising taxes for the state’s poorest families.
Lawmakers are managing around a $1 billion gap between the money they have to spend under the Taxpayer’s Bill of Rights limit and the cost of continuing state programs and services at their current level. They are looking at making painful cuts to Medicaid, the health care program for Coloradans with disabilities and low incomes, which is also the state’s biggest expense.
The data center bill, sponsored by House Majority Leader Monica Duran, D-Wheat Ridge, Rep. Alex Valdez, D-Denver, and Sen. Kyle Mullica, D-Thornton, is aimed at luring more data center development to Colorado, which has not seen the same industry boom as other states that offer cushy incentives. Colorado’s proposal mirrors some of them by exempting tech companies from paying state sales taxes on things like facility infrastructure, mechanical equipment and computer servers.
The bill was scheduled for a hearing earlier this month in the House Energy and Environment Committee, but Valdez said the sponsors were pulling it back to make changes. Valdez declined to comment on the fiscal projections, except to say that the planned amendments would change the outlook. He did not provide details about the amendments.
“We’ve got to reduce that,” Duran said about the bill’s estimated price tag. “We’re still negotiating and figuring out how we can bring all sides together.”
Dueling bills: incentives vs. regulations
Proponents of data center tax breaks argue Colorado shouldn’t look at it as lost revenue. If the tax breaks lure companies to build projects they wouldn’t otherwise, any revenue they generate is a net positive for public agencies. In Virginia, for instance, data centers enjoy large state tax breaks, but provide hundreds of millions of dollars in property tax revenue to local governments.
“This is revenue that has never been realized because they’re not being built at this point,” Mullica said. “We will see local sales tax from this, we will see property tax [revenue] increase, so from a tax perspective there’ll be that benefit as well.”
On the other hand, data centers are being built in Colorado even without a sales tax break. Today, the state has about 60 centers, with several more in the works. That suggests the state would lose at least some sales tax revenue from future projects that would have been built anyway.
In the fiscal year that starts in July 2027, the tax breaks in the bill are expected to decrease general fund revenue by $59 million. But the legislative analysts don’t predict whether the tax breaks would affect Coloradans with low incomes in that year or beyond.
The analysts assume three data center projects will qualify for the tax exemption in 2027, five more data centers would qualify in 2028 and seven would qualify in 2029. But they stressed that there “is significant uncertainty” about the number of data centers that will qualify each year.
A rival data center bill from Sen. Cathy Kipp, D-Fort Collins, and Rep. Kyle Brown, D-Louisville, does not offer any tax breaks. Instead, Senate Bill 102 would put more robust environmental rules on development to make sure data centers coming to Colorado do not raise electricity prices for consumers or blow the state’s greenhouse gas emission reductions targets needed to stave off the worst effects of climate change.
Last year, Brown sponsored an unsuccessful bill that proposed tax incentives for data center companies with Valdez. Now, he’s on the opposing side of the argument.
“Since we did the bill last year, other states are rolling back their incentives,” Brown said. “I’ve always believed that maybe there is a way that we can have kind of a win-win for everybody here. But I’m also increasingly concerned given the experience in other states.”
Lessons from Illinois
One of those states is Illinois.
And depending on where you land in Colorado’s debate over data center tax breaks, it could represent a role model or a cautionary tale.
A sales tax exemption passed by Illinois lawmakers in 2019 has helped make the state the nation’s fourth-largest hub for data centers, behind Virginia, Texas and California, according to Data Center Map. The 210 data centers in Illinois today have generated thousands of construction jobs and billions in tax revenue for state and local agencies, according to an industry-backed study.
But Illinois policymakers today aren’t exactly basking in the program’s accomplishments — in fact, many of them appear to have buyer’s remorse.
Like other states with large incentives, Illinois’ program has been wildly successful in attracting data centers. Companies have committed to $8.1 billion in cumulative investments since the tax breaks were first offered in 2020. In that period, the tax exemptions grew from $10 million in their first year to $331 million in 2024.
But the ballooning tax breaks have angered critics who question why wealthy companies like Amazon, Google and Meta shouldn’t pay their fair share. They also question whether the state is getting enough jobs for its economic development buck.
The Illinois law requires companies to commit to creating 20 permanent high-paying jobs. And 22 of the 27 projects certified by the state committed to creating exactly 20 positions — the bare minimum to qualify. In total, tech companies agreed to employ 591 workers at the 27 sites in order to qualify for $983 million in tax breaks, according to state economic development reports. That works out to $1.7 million in tax relief per job — a figure that doesn’t include temporary construction workers.
Colorado’s proposal doesn’t have a defined target for new employment. It also wouldn’t provide as much in tax breaks. Illinois exempts qualifying data centers from local sales taxes, unlike House Bill 1030, which only affects state sales taxes. And, Illinois’ state sales tax is more than twice as high as it is here — 6.25% compared with Colorado’s 2.9%.
Illinois’ data center boom has created other concerns, too. The state could face electricity shortfalls within a decade as the energy-guzzling facilities collide with plans to retire fossil fuel plants, a new report authored by three state agencies shows. Residents, meanwhile, have begun to push back forcefully against data centers in their communities, defeating a facility planned for the Chicago suburbs in January.
Illinois Democrats are now proposing legislation that would require new data centers to get all their electricity from renewable sources, cover the cost of expanding the electric grid and contribute to local areas through impact fees and community benefit agreements. These safeguards don’t appear in Colorado’s industry-backed bill, but similar protections do appear in the competing measure supported by environmental and consumer groups.
Even prominent supporters of Illinois’ data center boom have changed their tune in recent months. In his state of the state address this week, Gov. JB Pritzker, a Democrat, called for a two-year moratorium on the tax breaks, which he had long lauded as an economic engine.
A similar dynamic has played out in states across the country.
Brown, one of the sponsors of the environmentalist-backed bill in Colorado, said sponsors of both bills are negotiating to see if they can come to an agreement on a single proposal.
KUNC Reporter Lucas Brady Woods contributed to this story.