Iowa has five different sales and use tax exemptions specifically for data centers. On June 6, 2025, Iowa Governor Kim Reynolds signed H.F. 976, a law which changes the scope and administration of these data center exemptions. The data center portions of this bill take effect immediately. Businesses with current or proposed data center projects in Iowa should review this bill. H.F. 976 impacts data center exemptions for electricity and fuel. And the impact depends on where the data center is located.
Changes to Exemptions for Large Data Center Projects
Iowa has three sales and use tax exemptions for large data center projects. Large data center projects are those with investments of $200 million or more. Prior to H.F. 976, large data centers that met minimum investment and other legal requirements were allowed to indefinitely purchase computers, equipment, and energy exempt from Iowa sales and use tax. These exemptions also applied to electricity and backup power generation fuel.
H.F. 976 creates end dates to the large data center exemptions for electricity and backup power generation fuel. The time limits are different, depending on the size of the city in which the data center is located. Large data center exemptions for electricity and backup power generation fuel now have three tiers:
- Existing data centers. For large data centers that began operating prior to June 6, 2025, the exemption for electricity or backup power generation fuel for that data center will not expire.
- New or expanded data centers in larger cities. For data centers that are newly constructed or have additions on or after June 6, 2025 and are located in a city with more than 30,000 people, the exemption for electricity and backup power generation fuel is limited to the first 10 years of operation.
- New or expanded data centers in smaller cities. For data centers that are newly constructed or have additions on or after June 6, 2025 and are located in a city with 30,000 or fewer people, the exemption for electricity and backup power generation fuel is limited to the first 15 years of operation.
New Construction and Additions
Large data center exemptions will be intertwined with new construction and additions that occur after June 6, 2025. Like many legal aspects of the data center exemptions, the details of how the Iowa Department of Revenue (IDR) will interpret these legal restrictions are likely to come in the form of declaratory orders filed by data center owners and lessees. Current and prospective owners, investors, and operators will want to want to know—prior to preparing for new construction or additions—how certain construction projects will impact the length of time an exemption for electricity and fuel will apply. It will be especially important for taxpayers to understand whether certain construction projects will remove a current data center's indefinite sales tax exemption.
Site Preparation
H.F. 976 creates a statutory definition of “site preparation.” This has long been a key term for businesses seeking to qualify for a data center exemption. Even prior to H.F. 976, all the data center exemptions required businesses make a certain amount of investment within a number of years after initiating site preparation. But the statute did not define what constituted “site preparation.”
Lessees
The large data center exemptions were originally written without much thought for the idea that the owner of the real estate might lease the property to a tenant that would operate a data center. Recent declaratory orders by IDR, however, addressed whether and how data center exemptions applied to lessors and lessees. H.F. 976 expressly acknowledges that a data center business can be the owner or a tenant of a data center. The start date of a lease can also have an important impact on the timeline for tenants who are seeking to qualify for a data center exemption.
S.F. 976 establishes that the property tax exemption for data centers applies to leased property. And the bill describes when that exemption takes effect for leased property.
Registration, Annual Reporting, and New Exemption Certificate
The law creates a new registration, annual reporting, and exemption certificate system for large data centers. Large data centers will need to register and file annual reports with IDR. These annual reports will contain information about backup power generation fuel and electricity purchased by the large data center. IDR will issue a special sales tax exemption certificate to registered large data centers. Starting February 1, 2026, large data center businesses will use this exemption certificate when making their purchases.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
