Rep. Kent Roe, R-Hayti, listens to a committee hearing at the South Dakota Capitol in Pierre on Jan. 23, 2026. (Photo by Makenzie Huber/South Dakota Searchlight)
A bill that would have created a 50-year sales tax break on equipment and software purchases for data centers was stopped at the committee level on Wednesday at the South Dakota Capitol in Pierre.
Members of the House State Affairs Committee voted 9-3 against the bill, though some members expressed interest in attempting to revive it later this legislative session, which continues into March.
The tax exemption would be granted by the state Department of Revenue, requiring the data center to have an electric service agreement that avoids shifting costs to other utility customers. The data center would also be required to notify local water providers to ensure consumption is compatible for the location.
A South Dakota Searchlight series examining the impact, barriers and concerns regarding efforts to build data centers in the state. Read more>
Supporters said the bill would remove a barrier keeping data centers from being built in the state. South Dakota’s biggest data center consumes 30 megawatts of electricity, and the state has none of the vastly larger data centers that have proliferated elsewhere. Some of those bigger data centers, often for cryptocurrency and artificial intelligence, need up to 1,000 megawatts of energy, which is equivalent to the demand from 800,000 residential customers.
At least 37 states offer some sort of data center incentive, ranging from sales and use tax exemptions to property tax abatements, according to the National Conference of State Legislatures.
The bill is sponsored by Rep. Kent Roe, R-Hayti.
“If we choose to sit this out, we don’t stay neutral, we fall behind,” Roe said. “The jobs, the investment, the long-term tax base will simply go to Iowa, Nebraska, Wyoming and North Dakota.”
Opponents raised concerns about South Dakota’s ability to meet data center electricity demands; potentially rising costs of electricity for ratepayers across the state; and the impact on agriculture, land prices and public service needs in rural areas where data centers would be built.
House Speaker Jon Hansen, R-Dell Rapids, said he doesn’t believe the protections for ratepayers in the bill are sufficient, questioning the transparency around implementing the tax breaks and controlling rate increases for customers. He added that South Dakota shouldn’t “give away tax breaks to big techs.”
“They are some of the world’s largest companies and I think we should prioritize the people of our state over the world’s largest tech companies,” Hansen said.
More data center bills
Other bills related to data centers are making their way through the legislative process:
- HB 1038 requires data centers to pay for costs incurred by a contract review by the South Dakota Public Utilities Commission; the bill passed the House of Representatives with a 60-5 vote and heads to the Senate Commerce and Energy Committee.
- HB 1198 requires that “high energy use facilities” obtain conditional use permits from adjacent counties and municipalities if the property is within a mile of the boundary; the bill has not been heard in committee yet.
- HB 1246 prohibits nondisclosure agreements related to data centers and classifies such agreements as public record; the bill has not been heard in committee yet.
- SB 127 limits “nuisances” caused by data centers by restricting the facilities from being built within a mile of a residential area and prohibiting them from exceeding 45 decibels of noise at the nearest residential property line; the bill has not been heard in committee yet.
- SB 128 defines “large use customer” as an electric customer with at least 2 megawatts of demand and sets regulations for water and electric use; the bill, which hasn’t been heard in committee yet, also requires utilities to set rates for large-load customers to protect other customers from rate increases, requires a closed-loop cooling system, and requires regular water and electric use reports, among other regulations.
- SB 135 bars new state sales tax breaks for data centers, restricts utilities from increasing rates caused by large power demands, requires compatibility with local water supplies, and preserves local control over siting; the bill has not been heard in committee yet.
- SB 193 defines “backup electric generation”; data centers are increasingly required across the country to switch to backup power during peak hours.
