Data centers see changes in environmental and energy regulations, tax provisions

A regulatory law creates environmental and energy requirements for data centers, authorizes the Public Utilities Commission to create a new customer class of very large customers and to review and approve any electric service agreement between such a customer and a public utility, and modifies the current sales and use tax exemptions for the companies that operate them.

Sponsored by Rep. Greg Davids (R-Preston) and Sen. Ann Rest (DFL-New Hope), the law took effect June 15, 2025, except where noted.

2025 Special Session: SSHF16*/SSSF19/CH12

What’s a “large-scale data center”?

The law defines a qualified large-scale data center as a facility in Minnesota composed of one or more buildings connected to each other by fiber and associated equipment with an aggregate of at least 25,000 square feet. Its total cost of construction or refurbishment and investment in enterprise information technology equipment and computer software must be at least $250 million collectively by the facility and its tenants within a 60-month period beginning after June 30, 2025.

New applicants

A company seeking a new state permit for a data center will be referred to the Department of Employment and Economic Development’s Minnesota Business First Stop Program, which will coordinate the permitting in partnership with the Board of Water and Soil Resources, the Pollution Control Agency, the Department of Health and the Department of Natural Resources.

If an applicant’s proposed consumptive water use exceeds 100 million gallons per year, the company will be subject to special permit conditions.

Clean energy and capacity issues

The Public Utilities Commission is to develop a new customer class of “very large customers” and must approve any arrangement between such a customer and the public utility providing it with electric service. In evaluating these agreements, the commission must ensure that no costs attributable to very large customers are paid by other utility customers, who may also not be charged for any stranded costs associated with service to a very large customer. Any electricity supplied by a public utility to a very large customer must meet the state’s renewable energy, solar and carbon-free standards.

The commission will also require each public utility to offer a voluntary clean energy and capacity tariff to all its commercial and industrial customers. The customer will be required to pay all proportional costs for adding new clean energy or capacity resources to the electrical grid, and the utility will be prohibited from shifting the costs to other utility customers.

Fees for large-scale data centers

The law also establishes an energy and conservation account in a special revenue fund in the state treasury to which money must be transferred from the fee on qualified large-scale data centers. The rate of that annual fee is based on the data center’s peak demand forecast provided to the utility. The fee schedule would require annual payments according to these peak demand levels:

• 100 to 250 megawatts, $2 million;

• 251-500 megawatts, $3 million;

• 501-750 megawatts, $4 million; and

• more than 750 megawatts, $5 million.

The fee revenue must be used only for utility programs benefiting low-income households.

Tax exemptions, prevailing wage and sustainability requirements

The law adds “qualified large-scale data centers” to the state’s sales tax exemptions for purchases of enterprise information technology equipment and computer software made after June 30, 2025.

It also allows qualified data centers, qualified large-scale data centers, and qualified refurbished data centers to claim the exemption for 35 years after the first purchase qualifying for the exemption. Under previous law, the limit was 20 years.

Data centers certified by the Department of Employment and Economic Development prior to July 1, 2042, can continue to claim the exemption beyond that date, up to the 35-year limit.

Because of a 2025 change in state tax law (Chapter 13), qualified data centers are no longer exempt from paying sales and use taxes on electricity.

Laborers or mechanics performing work to construct or refurbish qualified large-scale data centers must be paid the prevailing wage rate for their work.

Within three years after being placed in service, a qualified large-scale data center must certify to the Department of Commerce that the facility has attained certification under one or more specified sustainable design or green building standards.

If the department determines this requirement has not been met, the data center must repay the amount of the tax exemption to the Department of Revenue.

HF0129* / SF2210 / CH12