Sens. Chris Karr, R-Sioux Falls, and Casey Crabtree, R-Madison, speak on the Senate floor. (Photos and illustration by Makenzie Huber/South Dakota Searchlight)
South Dakota legislative committees vetted nine data center bills on Wednesday at the Capitol, leaving three of the bills standing at the end of the day.
The legislation that passed muster was:
- Senate Bill 135, dubbed the “Data Center Bill of Rights for Citizens,” which would set protections for utility ratepayers and resources in law while also banning tax exemptions for data centers.
- Senate Bill 239, which would expand an existing sales tax rebate program for large companies such as those that own data centers.
- House Bill 1246, which would ban government bodies from entering into nondisclosure agreements for data center projects.
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See all of Searchlight’s coverage of the 2026 legislative session.
Bills halted in committee included efforts to impose statewide moratoriums on data center development, limit noise levels, establish minimum distances between data centers and residential properties, and regulate data center water and electricity use.
Data centers — rooms or buildings full of computer servers — have been storing cellphone pictures, emails and social media accounts for years. What’s new are 100- to 1,000-acre warehouses full of servers for cryptocurrency and artificial intelligence. Those massive data centers, needing 30 to 1,000 megawatts of energy, have electricity consumption equivalent to 29,000 to 800,000 residential customers.
South Dakota’s biggest data center consumes 30 megawatts, and the state has none of the vastly larger data centers that have proliferated elsewhere. Data center legislation introduced this winter during the state’s legislative session attempts to incentivize or regulate those larger data centers in South Dakota.
‘There can only be one’
One bill rejected by the Senate State Affairs Committee was introduced by Sen. Casey Crabtree, R-Madison. The legislation largely imitated the language of Senate Bill 135, the “Data Center Bill of Rights for Citizens,” except it left out the prohibition on tax exemptions.
Crabtree’s bill failed in a 5-4 vote, and a second, similar bill from Crabtree was also stopped by the committee in a 5-4 vote. The “data center bill of rights for citizens,” from Sen. Chris Karr, R-Sioux Falls, passed 5-4.
“When it comes to a bill of rights for the citizens, there can only be one,” Karr said.
Karr’s bill requires data center companies to ensure a facility’s water usage will not overburden local resources and to pay for their own electricity costs caused by the facility; prohibits the state from overruling local governments’ authority in relation to data center ordinances; and bans data center tax exemptions at the state and local level. The bill still allows for the state’s current sales tax rebate program under its existing rules, Karr told lawmakers.
Clock is ticking on data center incentive proposal as elections loom
Companies taking part in the state’s Reinvestment Payment Program earn a rebate on sales taxes paid for upgrading equipment or constructing a new building or expansion in South Dakota. The program is limited to three years and to building projects over $20 million or equipment upgrades of over $2 million. Companies must meet certain expectations — such as the number of jobs created, wages paid and physical footprint — laid out in the plan to qualify for the rebate.
Opponents to the bill included representatives of data centers, business and economic development groups, and utility companies. Some opponents said the definition of a data center was too broad, saying it could unintentionally include other large electricity users like hospitals and universities.
Nick Phillips, with Applied Digital, said the tax exemption ban effectively boxes out data centers from building in South Dakota. The company plans to build a 500 megawatt data center in Deuel County, but only if the state puts forth a tax exemption.
“Prohibiting an exemption means we’re just not coming,” Phillips said.
Earlier this legislative session, a committee rejected a 50-year sales exemption for data center purchases of equipment and software.
Expanding current tax incentive programs
While Karr’s bill bans tax exemptions, a third bill introduced and extensively amended by Crabtree expands the Reinvestment Payment Program to require separate regulations and tax incentive approaches for larger companies, such as a data center company.
Karr told South Dakota Searchlight after the meeting that Crabtree’s changes to the program are an attempted “workaround to the tax exemption ban” laid out in Senate Bill 135.
Crabtree told lawmakers the changes would provide for greater return on investment to the state in tax revenues, “more jobs, and better pay” by incentivizing larger companies to operate in South Dakota.
Under the bill, the state Board of Economic Development would set a new minimum project cost every two years. A qualifying company’s agreement could last 30 years for equipment upgrades and four years for construction costs.
Data center tax break proposal fails in South Dakota legislative committee
Companies would receive a “reinvestment payment” equal to or less than the state sales taxes paid by the project, as they do now, but state Governor’s Office of Economic Development Deputy Commissioner Joe Fiala told lawmakers that companies on this proposed “new track” would not have to pay sales taxes that qualify for a rebate.
“We’d do an analysis of the sales tax they would pay,” Fiala said. “We’d track that, and at the end of the project, we would have the ability to say, ‘You’ve done what you said. That sales tax you were going to pay, you do not have to pay it at the end of the project.’”
If companies don’t keep up their end of the bargain or show signs that they can’t meet the requirements while the agreement is still in place, the state could call in the owed sales taxes, Fiala said.
Fiala told lawmakers he believes the legislation “is the best path forward” of the data center bills introduced this session. Equipment upgrades would not extend to data centers used for cryptocurrency mining, which is digital currency secured by cryptography.
Karr told South Dakota Searchlight that he is unsure if the expanded program, if signed into law, would fall under the ban proposed in Senate Bill 135.
“It kind of creates a new program as far as economic tools go, especially as described by Joe Fiala,” Karr said. “That’s not what we’ve typically heard about how the program works.”
Crabtree’s bill passed the committee with a 6-3 vote.
Nondisclosure agreement bans
House Bill 1246 bans confidentiality or nondisclosure agreements for data center projects. The bill was advanced out of the House State Affairs Committee on a 9-3 vote.
The bill was introduced by Rep. John Hughes, R-Sioux Falls. It would bar a state agency or political subdivision from signing any agreement tied to the “construction, development, or location of a data center, which requires confidentiality or nondisclosure.” It would also treat such agreements as public records.
Supporters of the bill said residents should know the details of data center deals, given the potential impacts, citing water use and power demand. However, opponents, including Applied Digital representative Nick Phillips, said nondisclosure agreements enable early discussions without provoking the public about a project that may never move forward.
The three bills now head to the chamber floors for debate.
