By Todd Epp | South Dakota Broadcasters Association
A bill offering sales and use tax exemptions to data center companies failed in the House State Affairs Committee on Wednesday after nearly two hours of testimony and discussion focused on economic development, infrastructure capacity, and fiscal risk.
House Bill 1005, introduced by Rep. Kent Roe, R-Hayti, would have provided sales and use tax exemptions on equipment and software for qualifying data centers investing in South Dakota. The committee voted 9-3 to send the measure to the 41st day, effectively killing it for this session.
The proposal comes amid a broader, multi-year push by the data center industry to expand into the Upper Midwest, and follows a series of high-profile South Dakota debates over large-scale infrastructure projects, electric grid capacity, and rural siting decisions. Lawmakers and local officials have increasingly questioned how much risk and cost those projects shift onto local communities.
Roe told the committee the technology touches everyday life and represents critical infrastructure the state cannot afford to ignore. He said the bill had been revised over several months with input from utilities, landowners, and state agencies.
“More than 40 states, every neighboring state, already have more competitive policies,” Roe said. “We tax this technology higher than most.”
Under the bill as amended, exemptions would have been available for different lengths of time based on investment size and employment thresholds. To qualify, data centers would have needed to break ground between 2026 and 2036, pay property taxes, avoid shifting electric utility costs to other ratepayers, and file annual affidavits with the Department of Revenue.
Industry says South Dakota losing out on investment
Steve DelBianco, president of the technology trade association NetChoice, said he first brought a similar proposal to South Dakota six years ago but was told incentives were unnecessary.
“There are 40 states that exempt the equipment, so we have to pick the states that welcome us through that policy,” DelBianco.
DelBianco testified that a typical data center could generate more than $333 million in tax revenue over ten years, primarily through property taxes and electricity sales taxes, which are not exempt under the bill.
Rural counties cite tax base and services
Deuel County Commissioner Jay Grabow said rural counties face shrinking tax bases and difficult choices.
“What do we do? We increase taxes, or we reduce services, or we increase our assets in the county to spread those tax requirements over,” Grabow said.
Opponents raise safety and infrastructure concerns
Erik Oftedal, a firefighter with the Toronto Volunteer Fire Department, said volunteer departments are not equipped to handle data center-scale emergencies.
“The training and equipment to deal with a building of that size and complexity is something we are not prepared for,” Oftedal said.
Sara Steever, a recently retired chief technology officer, said data center demand is already outpacing infrastructure development.
“In Loudoun County, Virginia, the wait for new data centers that are not in line already is about seven years for connection,” Steever said. “These companies don’t need tax breaks. They need connectivity, which we already have.”
Lawmakers split over competitiveness, risk
Rep. Greg Jamison, R-Sioux Falls, proposed an amendment to create a tiered exemption structure. The committee rejected the amendment.
Rep. Tim Reisch, R-Howard, said rejecting the bill preserves a status quo that produces no return.
“100 percent of zero is zero,” Reisch said.
Supporters could still attempt to bring the bill to the House floor through a smokeout petition.
