Ohio Data Center Sales Tax Exemption: A Negotiated Agreement, Not a Rule

Ohio does not publish an exemption you qualify for — the Tax Credit Authority negotiates the percentage and the term, project by project, against a $100 million investment and $1.5 million payroll floor. What the agreement contains, why the clawback has no time limit, and the two bills that would cut the exemption to 50% or to nothing.

Three of the four state exemptions we have worked through operate the same way: the state publishes thresholds, a project meets them, the exemption follows. Ohio does not work like that. There, the exemption is a negotiated agreement with a state board, which decides how much of the tax to forgive — anything up to all of it — and for how long.

So the sentence "Ohio has a data center sales tax exemption" carries almost no information about what a particular project will get. The percentage and the term are not in the statute. They are in a contract, and you can ask to see it.

The floor you have to clear before any negotiation starts

An "eligible computer data center" under R.C. 122.175(A)(5) is one where:

• one or more taxpayers operating a computer data center business at the site will, in the aggregate, "make payments for a capital investment project of at least one hundred million dollars at the project site" within a cumulative period — three consecutive calendar years for projects beginning in or after 2015 (four years for 2014, six for 2013); and
• those taxpayers will, in the aggregate, pay annual compensation subject to Ohio withholding "of at least one million five hundred thousand dollars to employees employed at the project site", for each year of the agreement beginning on or after "the first day of the twenty-fifth month after the agreement was entered into".

Source: Ohio Revised Code § 122.175, as effective 30 September 2025 (authenticated text).

Two things in that are unlike the other three states.

Ohio sets a payroll floor, not a headcount. Georgia requires "new quality jobs", Virginia 50 jobs (10 in a distressed locality), Texas 20 — Ohio asks for $1.5 million of annual withholdable compensation and does not say by how many people. A handful of well-paid engineers can satisfy it. For a modern lightly staffed hall that is the easiest jobs condition of the four, and if a sponsor is comparing states on "the jobs requirement", this is the one that actually differs in kind.

The payroll clock starts in month 25. You get two years before the compensation test bites — and then it applies every year for the rest of the term.

What is negotiated rather than legislated

This is the part to understand before reading any Ohio projection.

The agreement must state "[t]he percentage of the exemption …, the length of time the computer data center equipment will be exempted, and the first date on which the exemption applies" (R.C. 122.175(E)(2)).

A model that assumes the full exemption is assuming the most generous outcome available from a discretionary body. Ask which percentage the agreement actually grants, and for how many years. Those are two numbers in a document. (What the exemption reaches is defined by statute as "the taxes levied under Chapters 5739. and 5741." of the Revised Code — Ohio's sales and use taxes — and it "shall extend to charges for the delivery, installation, or repair of the computer data center equipment subject to the exemption".)

The state has to find the exemption was decisive

Before the Authority may enter an agreement it must determine all four of these (R.C. 122.175(D)):

1. the project "will increase payroll and the amount of income taxes to be withheld";
2. "[t]he applicant is economically sound and has the ability to complete or effect the completion of" the project;
3. the applicant "intends to and has the ability to maintain operations at the project site for the term of the agreement"; and
4. "Receiving the exemption is a major factor in the applicant's decision to begin, continue with, or complete the capital investment project."

The fourth is a but-for test, and it has an uncomfortable corollary worth stating plainly: an application for this exemption is an assertion that the project might not happen without it. Hold that next to a marketing deck that presents the same project as compelling on its own economics. Both can be true — "compelling with the exemption" is a coherent position — but an investor is entitled to know which one the sponsor told the state.

Georgia's own auditors found that 70% of that state's data centers would have been built without its exemption (worked through here). Ohio asks each applicant to assert the opposite about itself, in writing.

Before the Authority sees it, the application goes to both the tax commissioner and the director of development, each of whom must "determine the economic impact that the proposed eligible computer data center would have on the state and any affected political subdivisions" and report back (R.C. 122.175(C)). So a per-project economic-impact assessment exists. Ask for it.

The exemption is re-earned every year

Ohio does not grant and forget. Each agreement must require the taxpayer to "annually report to the director of development employment, tax withholding, capital investment, and other information", and require the director to "annually review" those reports and, on verification, "issue a certificate to each such taxpayer stating that the information has been verified and that the taxpayer remains eligible for the exemption specified in the agreement" (R.C. 122.175(E)(5) and (6)).

There is one explicit piece of slack, and it is generous: an applicant does not breach the operations requirement "if the applicant ceases operations at the eligible computer data center during the term of the agreement but resumes those operations within eighteen months after the date of cessation" — but no exemption may be claimed on equipment bought during the gap (R.C. 122.175(E)(3)).

And jobs may not simply be moved across Ohio: the agreement must forbid relocating "a substantial number of employment positions from elsewhere in this state to the project site" unless the director determines the originating county, township or municipality was notified (R.C. 122.175(E)(7)).

The clawback has no time limit at all

Every Ohio agreement must include (R.C. 122.175(E)(8)):

"A waiver by each taxpayer subject to the agreement of any limitations periods relating to assessments or adjustments resulting from the taxpayer's failure to comply with the agreement."

Read that twice. The taxpayer waives the statute of limitations on assessments arising from non-compliance. Of the four states, Ohio's recapture mechanism is the one with no clock on it.

The sponsor question is the same in all four, and it is rarely volunteered: who bears a recapture — the issuer, the sponsor, or the investors? In Ohio it can arrive at any distance from the event that caused it. The full diligence list is in questions to ask a sponsor.

Two bills are deciding what this exemption is worth

Everything above is current law. It is also under active revision, and an Ohio project underwritten over fifteen years is being underwritten through that revision.

Senate Bill 374 is titled Prohibit new data center sales tax exemptions: "To amend section 122.175 of the Revised Code to prohibit new data center sales tax exemptions from being granted." It sits with the Senate Finance Committee (SB 374, 136th General Assembly).

House Bill 646, Create the Data Center Study Commission, amends R.C. 122.17, 122.175 and 3745.015 and enacts a dozen new sections "regarding data centers". It has passed the House and its current version is "As Re-referred to Senate Committee" (H.B. 646). As reported by the Senate Energy Committee, it would, among much else (LSC, *Synopsis of Senate Committee Amendments*):

• for new exemption agreements, reduce "the maximum amount that may be exempted from 100% to 50% of the price" (R.C. 122.175(B) and (F));
• require, for new agreement eligibility, that data centers with "an aggregate monthly maximum demand of 250 megawatts offset their electricity consumption by providing their own power generation through a mercantile customer self-power system, customer-generator project, or co-located load arrangement, or by entering into a purchase power arrangement of at least 15 years" (R.C. 122.175(A)(5)(c));
• limit to no more than 50% of a data center's improved value the share that may be exempted under locally granted property tax exemptions approved on or after the bill's 90-day effective date (R.C. 5709.94(B));
• require political subdivisions granting those exemptions to obtain security to ensure the developer satisfies its obligations (R.C. 5709.94(C)); and
• provide that nondisclosure agreements cannot negate the Public Records Act (R.C. 149.437).

Neither bill is law, and a bill as reported by one committee can be amended again or die. But the direction is unambiguous, and two of these provisions would change an investor's arithmetic directly: halving the sales tax exemption and halving the property tax abatement are both straight reductions in a projected return, and the 250 MW condition would make self-generation or a fifteen-year power contract a precondition of the tax benefit — which is the subject of behind-the-meter power and why power is the constraint, arriving as tax law.

Six checks on an Ohio project

1. Is there a signed agreement with the Tax Credit Authority, and what percentage does it grant? Not "Ohio exempts data center equipment" — the number in the document. It may be anything up to 100%.
2. What is the term, and when does the first exemption date fall? Both are negotiated, and the term is whatever the Authority set.
3. Has the $100 million been committed, and over which three calendar years? The window is cumulative and fixed at the start.
4. Does the model carry $1.5 million of Ohio-withholding payroll from the twenty-fifth month onward, every year of the term? It is a payroll test, not a headcount, and it does not go away.
5. Who bears a recapture, given the waiver of limitations periods? There is no point after which this is safely behind the project.
6. Does the model assume 100% of the tax, and for how long? If H.B. 646 passes in its Senate Energy form, new agreements are capped at 50%, local property tax abatements at 50% of improved value, and a 250 MW campus must bring its own generation or a fifteen-year PPA.

Next: Texas, where the rules are published and rigid rather than negotiated; Virginia, the largest market and the largest programme; Georgia, where the floor is $25 million in most of the state; and data center tax incentives for the shape all of these share.

For the developer's side — how an exemption like this is used in siting and fiscal structuring — the free vendor-neutral reference is *The Definitive Guide to AI Data Centers*, chapter 3.10. They cover how it is built; we cover whether to put money into it.

Nothing here is investment advice, and nothing here is tax advice. See how this site is funded.