US states adopt divergent policy approaches to data center development, ranging from financial incentives to development moratoriums.

Data centers have become a significant driver of new infrastructure development across the United States. According to recent Census Bureau data, construction spending on data center "shells"—the massive warehouse-like structures housing computing infrastructure—rose nearly 60% in July compared with July 2025 levels.

As demand for cloud computing, artificial intelligence, and large-scale data processing continues to expand, state and local governments face a critical challenge: attracting the economic benefits of data center investment while addressing substantial impacts on energy grids, water resources, and surrounding communities.

Employment figures vary considerably by project size, location, and operator. The promise of private and public infrastructure investment and direct and indirect job creation has become central to state incentive programs. The result is a rapidly evolving patchwork of legislative and regulatory activity—ranging from state and local tax incentives to moratoriums and even bans on new construction—varying significantly from state to state.

The following survey of Kentucky, New Jersey, Indiana, Ohio, and Texas highlights recent legislative and regulatory activity affecting data center development and identifies emerging trends across these jurisdictions.

**KENTUCKY**

*Enacted / Signed into Law*

Data Center Incentive Program (HB 8). Establishes an economic development program for data centers, including a 50-year sales and use tax exemption. Requires a memorandum agreement and prohibits rehabilitation or replacement of existing data centers.

Population-Based Incentive Expansion (HB 775). Amends KRS 154.20-220 to extend data center incentives to facilities in areas meeting certain population thresholds.

Kentucky Local Government Data Center Regulation. Over 30 local governments have taken or are considering action to regulate data centers or issue moratoriums in response to constituent concerns.

*Pending*

Electric Service Requirements (HB 593). Establishes tariffs, fees, and contract requirements for electric service to data centers. Prohibits shifting data center infrastructure costs to other utility customers and requires qualifying projects to certify compliance with applicable local requirements.

Ratepayer Protection (HB 544). Requires Public Service Commission approval of electric service agreements for data centers exceeding 100 megawatts and requires data centers to bear the costs of new infrastructure needed to serve the facility. Exempts certain existing large-load agreements.

Water Feasibility and Usage Reporting (HB 856). Requires data centers to submit a water feasibility study to the Energy and Environment Cabinet before commencing operations and to file annual water usage reports.

Decommissioning Requirement (SB 319). Requires certain data centers constructed on agricultural land to submit decommissioning plans prior to operation and engage with local government officials to regularly review and adopt practices to improve energy and water use efficiency.

Transparency Requirements (SB 330). Requires public disclosure of certain data center project information and prohibits public agencies from using nondisclosure agreements to limit transparency regarding data center development and impacts.

**NEW JERSEY**

*Enacted / Signed into Law*

AI Tax Credits – End Data Center Tax Credits Act (S4390/A5165). Reduces the amount of tax credits available under the Next New Jersey Program from $500 million to $250 million for qualifying AI and AI-related projects, including large-scale AI data centers, subject to major investment and job-creation thresholds. As of Q2 2026, one project had been awarded $250 million in tax credits, which was not impacted by S4390/A5165.

Capacity Cost Allocation (S731/A796). Requires data centers with electricity demands of 100 megawatts or more to pay for at least 85% of the electric capacity they request for a minimum of 10 years.

Semiannual Usage Reporting (S3379/A4096). Requires data center owners and operators to submit semiannual energy and water usage reports to the Board of Public Utilities.

Prevailing Wage (S4928/A6237). Establishes prevailing wage requirements for qualifying data center construction projects.

*Pending*

Grid Modernization Fund Surcharge (A2770). Establishes surcharge for electric public utility service to certain data centers during certain periods and establishes "Grid Modernization Fund" in the Board of Public Utilities.

Expedited SMR Approval and Permitting (A4769). Requires certain state agencies to establish expedited approval and permitting procedures for AI data centers powered by small modular nuclear reactors.

Public Disclosure Requirement (A5224). Requires data center developers to disclose certain information to public and elected officials before preliminary site plan consideration under the Municipal Land Use Law.

New Jersey Water Data Center (S1213). Establishes NJ Water Data Center at a public institution of higher education; appropriates $1 million.

Quarterly Usage Reporting (S2274/A4696). Requires owners or operators of data centers to submit water and energy usage reports to the Board of Public Utilities.

Review and Subsidy Restriction (S3611). Directs planning boards to submit certain data center development plans to the Board of Public Utilities and State Planning Commission and requires State Planning Commission approval for data center development under the Municipal Land Use Law. Excludes data centers from economic development subsidies.

Transparency Requirements (S4304/A2774). Prohibits nondisclosure agreements and similar arrangements that conceal information related to data center development from public review under the Municipal Land Use Law.

Water Use Impact Study (S4400/A3966). Requires the Department of Environmental Protection to conduct studies of short- and long-term effects of water use by large-scale data centers.

Data Center Impact Study (S4401/A4945). Requires the Board of Public Utilities to conduct a study on environmental, infrastructural, and financial impacts of data center development in the state.

Data Center Resource Impact Submission (S4402/A5294). "Responsible Data Center Development and Resource Protection Act"; establishes statewide framework concerning siting, land use approval, energy sourcing, water use, and environmental impacts of large-load data center development.

Clean Energy Requirement (S680/A1170). Requires proposed AI data centers and cryptocurrency mining facilities to submit an energy usage plan and obtain electricity from new clean energy sources.

Regional Clean Energy Resolution (SR18). Urges states within the Pennsylvania-New Jersey-Maryland Interconnection region to adopt clean energy requirements for data centers similar to those proposed in New Jersey.

AI Safety Disclosures (A5275/S4446). Requires AI developers to disclose risk management protocols to the Attorney General.

AI Apprenticeship Tax Credits (S2860/A5416). Establishes "Artificial Intelligence Apprenticeship Program" and tax credits for participating businesses.

*Pending Introduction*

Notice Abatement (A5373). Concerns notice abatement of data centers.

Contingency Plan (A5396). Requires data centers to submit water supply emergency contingency plan to the Department of Environmental Protection.

Water Usage Plan (A5397). Requires data centers to submit construction-phase water usage plans to the Department of Environmental Protection.

**INDIANA**

*Enacted / Signed into Law*

Sales Tax Exemption (IC 6-2.5-15). Exempts qualified data center equipment from Indiana's 7% sales tax. Certificates are valid for 25 years, or 50 years if investment reaches $750 million.

2025 Amendment (IC 6-2.5-15). Extends the exemption to quantum computing, advanced computing, defense infrastructure, and quantum-safe fiber networks. Introduces a $50 million minimum investment threshold; certificate extendable to 50 years if met within three years.

Local Revenue Share (IC 6-2.5-15-15.5). For certificates issued after June 30, 2026, requires qualified users to pay up to 1% of exempt state sales tax on electricity quarterly to local treasurers.

Investment Thresholds (IC 6-2.5-15). Tiered by county population: $150M (>100,000), $100M (50,000–100,000), $25M (≤50,000), each within five years. Noncompliance triggers clawback plus interest and penalties.

Property Tax Abatement (IC 6-1.1-10-44). Exempts enterprise IT equipment with ≥$25M investment and wages ≥125% of county average. Terms set by negotiated local agreement.

Expedited Generation Pathways (IC 8-1-7.9). Provides expedited Indiana Utility Regulatory Commission approval for utilities building generation to serve large-load customers (demand >5% of utility peak or 150 MW, investment >$500M, 50+ employees). Decision windows of 90–150 days.

Multi-Year Rate Plans (IC 8-1-46). Allows utilities to adjust base rates annually for new capital investment. Penalizes utilities whose residential bills rise faster than the national average, pressuring cost allocation to large-load customers.