Will Virginia government shut down July 1?

As July 1 approaches, the start of fiscal year 2027, Virginia could be facing its first ever partial government shutdown.

The House of Delegates is planning to return for a special session on June 18. The Senate reconvenes on June 22.

A debate about whether data centers should continue to get a tax break on equipment and software is holding up the 2027 budget.

Because more data centers are popping up across the commonwealth and many are updating chips and equipment with the emergence of artificial intelligence, supporters for ending data center tax exemptions said it’s costing the state nearly $2 billion in revenue.

The exemption is scheduled to end in 2035, but some senators want to end it sooner.

Virginia currently offers a sales and use tax exemption for data centers, which is a significant financial incentive for these facilities.

The Joint Legislative Audit and Review Commission studied the exemption in 2024 and found it provided $928 million in tax savings in fiscal 2023. About 90% of the state’s data center industry was using it. The exemption has been on the books since 2010 and is scheduled to expire in 2035.

To qualify for an extension beyond 2035, data centers must meet certain investment and job creation thresholds.

Virginia is estimated to have 35% of the world's data centers, which help manage and process data across the internet.

In 2016, lawmakers approved extending the exemption through 2035 to drive investment. The cost has since grown to $2 billion a year - far higher than what was originally expected.

Senate Finance Chair Louise Lucas has pushed to wind the exemption down rather than let it run untouched until 2035.

Gov. Abigail Spanberger and House Appropriations Chair Luke Torian have resisted early repeal, arguing the state must honor the agreements it signed.

This single issue is holding the whole budget hostage.