Introduction

This article explains Ohio’s pause on new data center tax incentives, focusing on the sales and use tax exemption freeze. It is intended for merit shop contractors, suppliers, estimators, and business developers who need to understand how these changes affect bidding, project planning, and regional competitiveness. Data center tax incentives are designed to lower financial burdens on operators, and with thirty-eight states offering tax incentives to attract data centers, understanding Ohio’s policy shift is critical for staying competitive in the region.

Key Takeaways

• On May 28, 2026, Republican Governor Mike DeWine paused new approvals of Ohio’s data center sales and use tax exemption while a joint legislative committee studies the industry’s cost, infrastructure, and community impact.
• This is a pause on new applicants, not a repeal. Projects that have already been granted a sales tax exemption on qualifying items are not automatically affected.
• The incentive helped attract roughly $37 billion in data center projects to Ohio across 2024 and 2025, but foregone state sales tax revenue reached about $554 million in 2024 and nearly $1.6 billion in 2025, far above an original annual estimate of $142 million.
• ABC Ohio Valley contractors, subcontractors, estimators, suppliers, and business developers should immediately pressure-test bids that assume a tax exemption for materials, equipment, computer equipment, cooling systems, power infrastructure, or network connectivity equipment.
• Before your next bid, update contingency language, track the July 1 ballot deadline, monitor the joint committee’s findings, and engage through ABC Ohio Valley and the ABC Action App.

Understanding Ohio’s Pause on Data Center Sales-Tax Exemptions

Ohio’s data center tax incentives, specifically the sales and use tax exemption, have been paused for new applicants as of May 28, 2026. Governor Mike DeWine’s May 28, 2026 announcement is now a live business issue for contractors. The Governor directed the state to halt new approvals of Ohio’s data center sales tax exemption while lawmakers review whether the program’s costs, energy demand, land use, and community impacts still justify its structure.

The key point: this is not a retroactive repeal. The pause targets new qualifying data centers seeking approval. Existing data centers and certified data centers with an exemption certificate generally continue operating under prior terms, provided they meet compliance, annual reporting, maintenance, job, and investment obligations.

For merit shop firms in Southwest and West Central Ohio, Northern Kentucky, and Southeastern Indiana, the freeze matters most in preconstruction. If a data center development has not received a written determination or certification, the exemption applies only if the project can still qualify under whatever rules survive the review.

Key terms to keep straight:

• Qualifying data center: a facility that satisfies Ohio’s criteria for the incentive, including how the data center is located, owned, developed, and operated.
• Sales tax exemption: relief from sales and use tax on qualifying items tied to the facility.
• Sales and use tax exemptions are the most common incentives for data centers.
• New approvals: the group is now paused, affecting certain data centers that have not yet been certified.
• Qualifying items: under Ohio’s broad structure, these have included tangible personal property, construction materials, computer equipment, software used in operation, electricity-related systems, cooling towers, fire suppression systems, and other equipment used to build or operate the facility.

For contractors, the freeze impacts the work that is still being priced, designed, value-engineered, or negotiated.

How the Exemption Fueled Ohio’s Data Center Boom

Ohio’s data center tax incentives helped make the state a national destination for large data centers, cloud campuses, AI infrastructure, and enterprise facilities. Data center tax incentives are designed to lower financial burdens on operators. The program reduced the cost of retail sales and purchases of expensive equipment that defines these projects.

Across 2024 and 2025, Ohio attracted roughly $37 billion in data center investment. That capital investment has touched corridors around Columbus, Dayton, Cincinnati, and the broader Ohio Valley, creating major construction opportunities for open-shop contractors capable of delivering safely, competitively, and at scale.

In practice, the incentive could apply to the following items:

• server racks, servers, storage, and network connectivity equipment;
• switchgear, transformers, UPS systems, generators, and power infrastructure;
• chillers, cooling systems, cooling towers, and air-management equipment;
• cabling, security systems, building controls, and certain software;
• construction materials incorporated into real property, whether on a single parcel, contiguous parcels, or in a single building.

According to the National Conference of State Legislatures, 38 states offer some form of data center sales-and-use tax incentive. Ohio’s program stood out because it broadly defined qualifying equipment and materials, including some state and local sales relief.

That matters because the data center must purchase enormous quantities of equipment before operation begins. On a hyperscale project, the sales tax treatment of such property can swing the total project cost by tens or hundreds of millions of dollars.

For owners using private funds, that difference can decide whether a project moves forward in Ohio, shifts to Kentucky or Indiana, or pauses until the tax picture is clearer.

Why the State Hit Pause: Revenue Pressure and Political Scrutiny

The same incentive that helped win work also triggered scrutiny. State forecasts once projected annual program costs near $142 million. Actual losses moved far beyond that number.

Reported tax expenditure figures show:

Item	Reported amount
2024 foregone Ohio state sales tax	about $554 million
2025 foregone Ohio state sales tax	nearly $1.6 billion
Original annual estimate	about $142 million
2024–2025 data center investment	roughly $37 billion
That gap created pressure at the Statehouse. Lawmakers, local governments, budget analysts, agricultural stakeholders, and ratepayer advocates began asking whether the exemption was outrunning job creation, qualifying jobs, local tax benefits, and broader economic returns.

On May 13, 2026, lawmakers announced a joint legislative data center committee to study data center projects, land use, power infrastructure, utility cost, tax incentives, and community impact. The committee’s work gives the legislature a vehicle to consider reforms before more qualified data centers receive long-term benefits.

Possible reforms could include:

• narrower definitions of qualifying items;
• investment thresholds or a five-year period for minimum spending;
• job creation requirements, wage rules, or health insurance requirements;
• limits on state sales, state sales tax, or local sales tax;
• carbon-neutral goals or green building standards;
• clawbacks if facilities fail to operate for at least five years.

For ABC Ohio Valley members, the fiscal debate is not abstract. It could change what owners can afford, where developers build, and how contractors price the next facility.

What Is and Is Not Affected: Existing vs. New Qualifying Data Centers

The distinction between certified and uncertified projects is the first question every estimator should ask.

Category	Current practical impact
Protected projects	Projects already certified as qualified data centers generally retain existing benefits, subject to contract terms and compliance.
At-risk projects	New construction that has not received approval may not be eligible for the prior sales tax exemption.
Pipeline uncertainty	Early-stage design, site work, and speculative procurement may need new pricing assumptions.
Existing certifications generally continue for their agreed terms. That includes the exempt sale of qualifying items when the purchase is properly documented and tied to the approved facility. However, contractors should verify each exemption certificate and confirm which property, equipment, tenants, and scopes qualify.

The pause primarily affects new applicants. A data center located in Ohio, but not yet approved, may face full tax exposure on materials and equipment unless a future law restores or revises the incentive.

Risk areas for ABC Ohio Valley members include:

• preconstruction budgets that assumed exemption approval;
• design-assist work where owners have not filed applications;
• speculative site prep in rural areas or fast-growing counties;
• supplier quotes that omit sales tax;
• contracts that do not say who pays if the incentive disappears.

For deeper context, members should review ABC Ohio Valley’s coverage of the joint data center committee, our Ohio data center regulations explainer, and the data center builders operational playbook.

Bid, Cost, and Contract Implications for Merit Shop Contractors

This is where the freeze hits the job trailer, the estimating room, and the CFO’s desk.

Ohio’s exemption historically covered more than a building shell. It could include tangible personal property, construction materials, fire suppression systems, electrical distribution systems, mechanical systems, computer equipment, cooling systems, and other qualifying equipment used in the facility’s operation.

Without certainty, bids should be re-run with full Ohio sales and use tax, including the 5.75% state rate and applicable local sales tax where relevant. On large packages, that can change total contract value quickly.

Before submitting or revising a bid:

• identify every scope that assumes tax-free treatment.
• separate materials, equipment, software, and labor;
• confirm whether the project has a written determination or exemption certificate;
• price alternates with and without the exemption;
• flag the difference to owners before award;
• document any refund request process if tax is paid and later challenged.

Contract language now matters. Proposals should state whether pricing assumes an exemption, whether final price changes if the project does not qualify, and who bears risk if state sales or local sales rules shift mid-project.

A useful approach is to add a clear tax-status contingency:

• final price is subject to confirmation that the project qualifies;
• owner is responsible for the tax if certification is denied;
• contractor is entitled to an adjustment for changes after the effective date of the proposal;
• owner must provide valid certificates before purchase orders are issued.

This is also a business development issue. Contractors that can explain tax exposure clearly will help owners make faster go / no-go decisions.

For broader market planning, pair this review with ABC Ohio Valley’s 2026 construction economic outlook.

Regional Political and Timeline Risks Contractors Must Watch

The freeze is landing in a volatile 2026 political calendar.

A citizen-led ballot effort is seeking to ban new hyperscale data centers, with a July 1, 2026, deadline to gather signatures for the November ballot. Even if the effort fails, it creates uncertainty for municipalities, utilities, developers, and contractors trying to schedule large data center projects.

Governor DeWine is term-limited, and the next administration could restore, rewrite, or replace the current program. Republican nominee Vivek Ramaswamy has described the Ohio River Valley as a future technology and AI hub, signaling that the incentive debate may become part of a larger economic development strategy.

Watch these scenarios:

• If signatures qualify by July 1, the November ballot could delay site decisions and financing.
• If the committee recommends reforms this summer, legislation may redefine qualifying items or impose job creation requirements.
• If lawmakers wait until the lame-duck period, bids may sit in limbo during the busiest planning months.
• If a new governor takes office in 2027, tax policy could shift again, affecting Ohio, Northern Kentucky, and Southeastern Indiana competition.

Contractors should treat these dates as schedule risks, not just political headlines.

How Ohio’s Pause Fits into the National Data Center Tax Incentive Landscape

Ohio is not alone. Across the country, states are reassessing data center tax incentives as questions about power demand, water use, local sales impacts, and job creation grow. Thirty-eight states offer tax incentives to attract data centers.

Many states use guardrails such as:

• minimum capital investment thresholds;
• required qualifying jobs or payroll levels;
• limits on the first five years of benefits;
• exclusions for certain non-operational property;
• separate rules for local sales tax and state sales tax;
• reporting standards for each county where a facility is located.

Ohio’s paused structure was comparatively generous because it reached major equipment and materials. In other states, the rules may focus only on servers, exclude construction materials, or require the data center to operate for at least five years before retaining full benefits.

For owners comparing Ohio, Kentucky, Indiana, and other Midwest locations, small differences in tax treatment can shift site selection. For merit shop contractors, that is an opportunity. Firms that understand multi-state rules can advise clients earlier and compete wherever the next project lands.

Action Plan for ABC Ohio Valley Members: What to Do Before Your Next Data Center Bid

Use this checklist before pricing, rebidding, or negotiating data center work.

1. Audit active bids.
   • Does the estimate assume a sales tax exemption?
   • Are materials, equipment, software, and qualifying items separated?
   • Has the owner provided an exemption certificate?
2. Recalculate exposure.
   • Apply full state and local sales and use tax.
   • Identify high-risk scopes: electrical, mechanical, security, IT, and specialty systems.
   • Show clients the delta between exempt and taxable pricing.
3. Tighten proposal language.
   • Tie final price to certification status.
   • Allocate risk if the project does not qualify.
   • Address changes after the proposal effective date.
   • Require documentation before major purchase orders.
4. Monitor decision points.
   • July 1, 2026 ballot petition deadline.
   • Joint data center committee findings.
   • Draft legislation affecting data centers.
   • 2026 governor’s race policy signals.
5. Engage through ABC.
   • Use the ABC Action App to contact legislators.
   • Watch ABC Ohio Valley alerts.
   • Share project-level examples showing merit shop safety, productivity, workforce development, and open competition.
   • Participate in chapter briefings on tax, electricity, workforce, and permitting issues.

Merit shop readiness is a competitive advantage. Owners need contractors who can price risk, build safely, train workers, and keep complex facilities moving even as policy changes.

FAQ

How does the pause affect projects already certified as qualified data centers?

As of the May 28, 2026 announcement, the pause targets new approvals. Projects already certified as qualified data centers with sales tax exemption certificates generally retain existing benefits, subject to performance, reporting, and contract requirements.

Contractors should still review each agreement, confirm documentation, and consult tax or legal advisors before relying on an exemption for active purchases.

What kinds of purchases typically count as “qualifying items” under Ohio’s incentive?

Typical qualifying items included servers, storage, networking equipment, power distribution units, transformers, backup generators, UPS systems, chillers, CRAC units, building management systems, cooling systems, and related software used directly in data processing and facility operation.

Many construction materials integrated into core infrastructure could also qualify. General office furnishings and unrelated items usually require closer review.

Does the pause change local government incentives or abatements tied to data center projects?

Not automatically. DeWine’s pause directly affects the statewide sales and use tax exemption approval process for data centers. It does not, by itself, cancel local property tax abatements, TIF arrangements, infrastructure agreements, or municipal incentives.

However, local governments may reconsider future packages if state policy changes.

How should smaller subcontractors and suppliers respond?

Even if your company only supplies cable trays, piping, steel, switchgear, finishes, or specialty materials, the loss or delay of a data center tax incentive can affect purchase orders, delivery schedules, and margins.

Ask the primes whether bids assumed an exemption, include tax contingencies where appropriate, and keep documentation for every purchase tied to the project.

Could neighboring states become more attractive because of this pause?

Yes. Kentucky, Indiana, and other nearby states also compete for data center development with various tax incentives and utility strategies. Some states also add extra qualification steps; for example, Virginia data centers must enter a memorandum of understanding with VEDP after 2023, and large projects may involve contiguous parcels that are commonly owned. Site selectors may revisit shortlists while Ohio’s policy is under review.

ABC Ohio Valley members who work across state lines should understand each state’s sales tax rules and position themselves as practical, merit shop partners wherever the next facility lands.

The next bid may be priced under a different tax landscape than the last one. Use ABC Ohio Valley, the ABC Action App, and your project-level intelligence to make sure the merit shop voice is heard while Ohio rewrites the rules.