When the Legislature struggled its way toward giving regular folks a sales tax break in 2023, they could only muster the courage to make the cut from 4.5% to 4.2% last for four years (see the sunset clause in 2023 House Bill 1137, Section 19. And now that we appear to have reached Lee Schoenbeck’s fiscal cliff, legislators are talking about rescinding that meager tax cut even sooner.
But if you’re a billion-dollar tech company looking to cash in on artificial intelligence, the Legislature is ready to write you a massive tax break for 50 years.
In a demonstration of Republican tax-relief priorities, the first tax-cutting bill of the 2026 Session, rookie Representative Kent Roe’s (R-4/Hayti) House Bill 1005, would exempt new data centers from sales tax and use tax on hardware and software for 50 years. And by hardware—”enterprise information technology equipment” is HB 1005’s key term—Rep. Roe means a lot more than servers and cables:
(3) “Enterprise information technology equipment,” the following products used solely for the maintenance and operation of the qualified data center:
- Computer hardware, servers, storage arrays, backup systems, disaster recovery equipment, routers, cooling systems, temperature control infrastructure, network equipment, switches, load balancers, firewalls, network cabling, edge devices, network monitoring equipment, water treatment systems, chilled water equipment, economizers, cooling towers, and piping and pump equipment for cooling towers;
- Power infrastructure for the management of electricity, dedicated distribution equipment, backup power generation systems, battery systems, construction materials for structures unique to data centers or other related insfrastructure [sic] excluding primary electric generation service, transmission, or utility distribution infrastructure;
- Racking systems, raised flooring, cabling, or trays necessary for the maintenance and operation of a qualified data center;
- Security systems, physical access control systems, surveillance systems, biometric scanners, security monitoring equipment, and monitoring systems, environmental monitoring systems, infrastructure management tools, and building management systems;
- Testing and diagnostic equipment used for maintenance, commissioning, or troubleshooting;
- Telecommunications and fiber infrastructure, fiber optic cabling, satellite equipment, and internet exchange components; and
- Air quality systems, specialized HVAC, filtration, and humidity control equipment [2026 House Bill 1005, definition of enterprise information technology equipment, filed 2025.12.26].
HB 1005 grants this generous tax break only to data centers permitted in the next ten years (July 1, 2026, through June 30, 2036). Rep. Roe thinks a 50-year sales/use tax exemption could lure a data center to Deuel County that would generate other tax revenue:
“There’s a proposed project in southeastern Deuel County that could do just loads of economic positive development,” Roe stated. He noted that the facility could have an assessed value of approximately $400 million, representing a roughly 40% increase to the county’s assessed tax base.
This development is projected to generate over $5 million annually in property tax revenue for Deuel County, with 58% of that revenue channeled into the school funding formula. Additionally, Roe highlighted the potential for more than $10 million in state sales tax revenue per year from the facility’s energy use, currently “exported out of the state.” The project is also expected to create over 200 full-time jobs [Steve Jurrens, “Roe Prioritizes Economic Growth, Data Center Legislation in Re-Election Bid,” Northeast Radio SD, 2025.12.05].
Rep. Roe appears to have fallen for the myth that Microsoft, Google, and other tech giants need tax incentives to build data centers. Pish tosh, says the Ford School of Science, Technology, and Public Policy at the University of Michigan:
Data center companies locate sites based on electricity prices, land availability, and climate conditions. Although tax breaks are often justified as a way for communities to attract data centers, these policies do not affect data center location decisions. As an executive responsible for Microsoft’s North American data centers stated in 2024, “I can’t think of a site selection or placement decision that was decided on a set of tax incentives” [Terry Nguyen and Ben Green, “What Happens When Data Centers Come to Town?” University of Michigan Ford School of Science, Technology, and Public Policy, July 2025, p. 7].
How much sales and use tax South Dakota would lose from these corporate tax breaks is unclear (I hope LRC gives us a fiscal note!), but the per-job cost of tax incentives elsewhere has proven huge:
A new data center in Genesee County, Alabama, could reduce revenues to schools and the local government by $1.7 million each year. Developers are seeking a minimum $167 million in tax breaks for the creation of 200 jobs, or $838,000 per job. These figures far exceed reasonable benchmarks for economic development incentives, making it unlikely that taxpayers will ever see a return on investment [Nguyen and Green, July 2025, pp. 7–8].
The jobs data centers create aren’t that great:
Data centers do not bring high-paying tech jobs to local communities because they operate as
infrastructure projects rather than traditional job-creating businesses. Although the construction of data centers can create many jobs, those are short-lived. Once data centers are built, they require relatively few employees since the facilities primarily house computers and servers.8 The jobs that data centers do create locally are typically low-wage, term-limited, non-technical positions such as security, maintenance, and janitorial work. These roles are often filled by contractors rather than full-time employees, meaning they lack union protections, benefits, and job security. As a result, these positions tend to be short-term and do not contribute to sustained economic growth or long-term career opportunities for local residents [Nguyen and Green, July 2025, p. 7].
And average employment at data centers is well below the 200 Roe expects his tax breaks to win for Deuel County:
In 2024, the QCEW identified 55,256 establishments nationally that are grouped in the same classification that includes data centers. That’s triple the number that existed in 2015. In 2024, these establishments employed just under 563,000 workers for an average of about 10 workers per establishment. However, these establishments include many legacy facilities that are not of the same scale as the immense data centers that are being constructed today. Still, it’s hard not to notice that the number of workers per establishment, rather than growing as data centers have gotten larger, has actually declined by half since 2015.
But, if we want to concentrate on just the new, larger data centers that are being built today, there are other ways of estimating how many people they employ. Quite a few companies develop and operate data centers. Seven of the largest – Equinix, CoreSite, CyrusOne, QTX, Center Square, Switch, and Digital Realty – operate a combined 811 data centers globally. According to employment information from the website, LeadiQ, they employ a combined 21,654 workers – an average of about 27 per data center. That’s more than the ten suggested by QCEW data, but still only about as many as are employed by an average Olive Garden restaurant.
Even if we examine industry-reported figures, which are sometimes exaggerated, the numbers aren’t much more impressive. According to C&C/WaveTech, there were 5,426 data centers in the US in 2024 and according to the PwC study, they employed 603,900 workers, an average of about 111 per data center.
Based on all of this, it’s probably safe to assume that a major data center is likely to employ somewhere between the global average of 27 workers and the industry-supported figure of 111, which means that the number of jobs it offers may range from the number of offered by an Olive Garden to the number of staff and teachers in an average American high school. While 27 to 111 jobs are welcome and good to have, numbers in this range are not economically game-changing for even the smallest counties [Sean O’Leary, “Why Data Centers Will Be Economic Development Duds,” Ohio River Valley Institute, 2025.11.11].
The Wall Street Journal casts similar doubt on data centers’ job-creation potential:
In Abilene, Texas, some 1,500 people are building the first data center for the Stargate artificial-intelligence venture led by OpenAI.
Once it is completed, a lot fewer people will work there. The facility will have about 100 full-time employees, according to the city’s economic development agency. That total is a fraction of the number of people who might work on the same one million square feet if it were an office park, factory or warehouse. A 286,500-square-foot cheese-packaging plant that broke ground in Abilene in 2021 was projected to employ 500 people.
“Data centers have rightly earned a dismal reputation of creating the lowest number of jobs per square foot in their facilities” said John Johnson, chief executive of data-center operator Patmos Hosting [Tom Dotan, “The AI Data-Center Boom Is a Job-Creation Bust,” Wall Street Journal, 2025.02.25].
Hmm… didn’t I just read something from Rapid City about focusing tax incentives on more dense and productive land uses?
However many jobs data centers might create, and however good those jobs may be, there are 483,000 South Dakotans doing actual jobs right now, busting their chops to support themselves, their families, their local schools and police and fire departments. Aren’t they at least deserving of a tax exemption as corporations already worth billions of dollars who promise to build data centers here?
HB 1005 seems to ignore all the other incentives South Dakota already offers to boost economic development. In addition to low taxes, low wages, and clear blue skies, South Dakota offers footloose corporations tax refunds for relocating or expanding their businesses here. Giving big tech companies a unique 50-year exemption from sales and use tax for one specific type of project seems redundant and excessive… especially when South Dakota can’t give actual workers a minor sales tax reduction for four years, never mind a complete exemption for the rest of their working lives.