Senate rejects bill to codify sales‑tax refund for data centers after floor debate over incentives and grid impact
February 14, 2025 | 2025 Legislative SD, South Dakota
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The Senate voted down Senate Bill 177, a proposal to codify a sales‑and‑use‑tax refund for brick‑and‑mortar data centers operating in South Dakota. Sponsor Senator Dave Wheeler framed the bill as a tool to provide regulatory certainty to attract data centers that currently choose other states; opponents warned of large foregone tax revenues and potential strain on power and water resources.
Under the bill as introduced and later amended on the floor, the refund would have applied only to state sales tax on qualifying equipment (not construction or local sales taxes), been limited to projects with equipment costs up to $500 million, and contained a four‑year sunset (the floor amendment removed a 20‑year triggering reference). The sponsor argued many states offer data‑center incentives and that certainty — a statutory cap and clear refund path — would make South Dakota competitive.
Opponents including Senator Joan Howard and others said the state already has a reinvestment or rebate program administered by the Governor's Office of Economic Development (GOED) and urged caution during a tight budget year. Concerns expressed on the floor included the potential cost of refunds (one figure cited: a $21 million refund on a $500 million project), the effect on the state’s primary revenue stream (sales tax), and infrastructure demands such as water and electricity. Senator Randall Blanc and others raised grid capacity concerns, citing lobbyist and PUC figures that a data center could use up to 400 megawatts — significantly more than some cities’ typical usage.
Floor debate included questions about fiscal analysis; Senator Blanc asked whether LRC had prepared a fiscal impact and the sponsor answered no. Some senators argued the incentive could spur property‑tax revenue at the local level and create high‑paying jobs; others argued the refund would largely benefit large out‑of‑state companies at the expense of state budget priorities.
On the final roll call the secretary announced 17 yeas and 18 nays; the bill failed to receive a majority and was lost.
Under the bill as introduced and later amended on the floor, the refund would have applied only to state sales tax on qualifying equipment (not construction or local sales taxes), been limited to projects with equipment costs up to $500 million, and contained a four‑year sunset (the floor amendment removed a 20‑year triggering reference). The sponsor argued many states offer data‑center incentives and that certainty — a statutory cap and clear refund path — would make South Dakota competitive.
Opponents including Senator Joan Howard and others said the state already has a reinvestment or rebate program administered by the Governor's Office of Economic Development (GOED) and urged caution during a tight budget year. Concerns expressed on the floor included the potential cost of refunds (one figure cited: a $21 million refund on a $500 million project), the effect on the state’s primary revenue stream (sales tax), and infrastructure demands such as water and electricity. Senator Randall Blanc and others raised grid capacity concerns, citing lobbyist and PUC figures that a data center could use up to 400 megawatts — significantly more than some cities’ typical usage.
Floor debate included questions about fiscal analysis; Senator Blanc asked whether LRC had prepared a fiscal impact and the sponsor answered no. Some senators argued the incentive could spur property‑tax revenue at the local level and create high‑paying jobs; others argued the refund would largely benefit large out‑of‑state companies at the expense of state budget priorities.
On the final roll call the secretary announced 17 yeas and 18 nays; the bill failed to receive a majority and was lost.
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