Pennsylvania Gives Amazon Potentially Unlimited Sales Tax Exemption
The tech and online retail giant will build at least two data centers in the Keystone State but pay no sales taxes on equipment.
Amazon, the tech and online retail juggernaut, is expanding its physical footprint, with a little help from Pennsylvania taxpayers.
"Amazon plans to spend $20 billion to build two data centers in Pennsylvania, a move that state officials say will generate thousands of jobs over the next decade and stoke considerable economic activity," wrote Stephen Caruso and Kate Huangpu of Spotlight PA, an independent media outlet. "But many key details, like the centers' full impact on electricity supply and prices, and the amount of tax revenue the state will forfeit to Amazon, are still unknown."
"In March 2024, Talen Energy sold its 960-megawatt (MW) data center to Amazon Web Services (AWS) for $650 million," Jeff Luse wrote in November 2024 for Reason. "The data center is a co-located facility, meaning it will draw electricity directly from Susquehanna Steam Electric Station—a nuclear power plant that generates 2.5 gigawatts of power annually—rather than from the grid." The other facility will be located in a former U.S. Steel mill and hook into the state's existing power grid, and there is the possibility of a third facility later on.
The data centers will support Amazon's artificial intelligence and cloud computing, which require substantial processing power. Rick Siger, secretary of the Pennsylvania Department of Community and Economic Development, said the project "will drive enormous positive tax impacts for our Commonwealth, counties, and municipalities, and will create at least 1,250 high-paying, high-tech jobs as well as thousands of construction jobs."
Unfortunately, that's not a guarantee. "The data center industry has grown rapidly in recent years, and state governors have touted the jobs it would create," Ellen Thomas wrote at Business Insider. But "once built, data center facilities don't employ large numbers of permanent employees, and the economic development contracts they sign in exchange for tax incentives often reflect that."
Data centers do initially create plenty of work for construction crews, but once operational, they require only a small permanent staff for general upkeep. "Most permanent data center jobs are in security and landscaping, alongside a handful of technicians who monitor the facilities' computers," write Caruso and Huangpu, citing Greg LeRoy of public subsidy watchdog organization Good Jobs First.
In fairness, Pennsylvania is spending considerably less taxpayer money than most states do to attract new businesses. Officials in St. Joseph County, Indiana, voted last year to give Amazon tax breaks and incentives worth $4 billion or more, to build a data center in the area. Arlington County, Virginia, offered Amazon as much as $750 million to build its second corporate headquarters there.
On the other hand, Pennsylvania's "only direct financial investment" in its Amazon data centers will come in the form of "$10 million for 'targeted workforce development efforts,'" Caruso and Huangpu write. But that doesn't mean Keystone State taxpayers are otherwise off the hook: "Pennsylvania didn't offer a new, targeted incentive package to Amazon, but the tech giant has already been approved for a tax break that the commonwealth gives to companies that build data centers here."
A state program exempts large data centers from paying sales tax on any purchases of certain "computer data center equipment." Any company that spends at least $75 million of "new investment" to create a data center that "creates 25 new jobs" in a county with no more than 250,000 residents, and pays at least $1 million in annual payroll at the site, can apply for an exemption from all sales taxes paid to purchase equipment to operate servers, including software, cooling systems, and security and monitoring equipment.
"The law requires neither the buyer nor the seller to report the cost of exempt transactions to the state," Caruso and Huangpu add. "That means the exact cost is unknown. Still, the state estimates the lost tax revenue in budgets." In his budget proposal for the 2025–26 fiscal year, Gov. Josh Shapiro estimated $43.1 million in lost tax revenue from the program, growing to $51.1 million by the end of the decade. Former Gov. Tom Wolf predicted in his proposal for the 2022–23 fiscal year that by 2025, the program would cost nearly $75 million in lost revenue. "Jeffrey Johnson, a spokesperson for the Department of Revenue, said the original projection was reduced after lower-than-expected use in early years," Caruso and Huangpu write.
Still, it's worth remembering that Amazon—the world's second-largest company by revenue, behind only Walmart—committed to spend $20 billion on data centers in Pennsylvania alone. Clearly, the tech giant is not hurting for cash, and Pennsylvania taxpayers should not be on the hook for a potentially unlimited cash giveaway to a private company.
