West Virginia looks to AI data center boom to help eliminate state income tax

West Virginia Gov. Patrick Morrisey has joined with state lawmakers to roll out a seven-point strategy aimed at steering the state through a surge in data center development while reshaping how the revenue it generates is used.

The plan, unveiled this week, ties future hyperscale data center projects to a long-term goal of phasing out West Virginia's personal income tax. It also sets aside portions of the revenue for counties, schools, infrastructure upgrades and grid reliability work.

Under the framework, half of all revenue produced by projects approved through the state's High Impact Data Center Designation process would go directly toward reducing, and eventually eliminating, the state income tax. None of the designated revenue would flow into the general budget. Thirty percent would go to counties that host data centers for schools and local government needs, another 10 percent would be spread among all 55 West Virginia counties, and the final 10 percent would be earmarked for infrastructure, including public water systems.

Water infrastructure has become a particular concern in southern parts of the state, where communities have struggled since the decline of the coal industry.

"Today, as the world stands on the cusp of a new digital and economic frontier, West Virginia is stepping forward once again to lead, not by repeating the mistakes of other states, but by implementing a proactive, 20-year development strategy on our terms," Morrisey said in a statement.

In separate comments, the governor emphasized that residents must see direct benefits from the projects.

"By statute, 50 percent of the proceeds … will be dedicated to directly reducing and ultimately eliminating the state income tax," Morrisey said. "[It's] very powerful [and] it's going to benefit many, many West Virginians."

The plan builds on legislation passed earlier this year, House Bill 2014, which established the designation process and included provisions intended to shield utility customers from added costs tied to data center growth. That protection has been a flashpoint in the Eastern Panhandle, where counties border the Washington, D.C. metro area and residents have watched the rapid expansion of facilities across the border in Northern Virginia.

In Jefferson and Berkeley counties in West Virginia, and in neighboring Clarke County, Virginia, yard signs reading "No Data Centers" have become a common sight along roadways. The opposition reflects anxieties playing out in Loudoun County, Virginia, where dense clusters of data centers have grown alongside residential neighborhoods.

Rep. Suhas Subramanyam, a Democrat who represents Ashburn in the heart of Loudoun County, recently warned that the unchecked pace of development carries consequences beyond one region. "We are a cautionary tale for the rest of the country," Subramanyam said. "[I]f my district were a country, it would have more data centers than almost every other country in the world."

Back in West Virginia, some state lawmakers say more safeguards are needed. House Minority Leader Sean Hornbuckle, a Democrat from Huntington, was a listed sponsor of HB 2014 but has since called for amendments to give communities more say over whether and how data centers are built.

"We are not going to allow a hostile takeover in our communities. It's not going to happen on our watch," Hornbuckle said in June, according to the Steubenville Herald-Star. "We all know what House Bill 2014 did, and it's setting a very dangerous precedent in the state of West Virginia, [where] we all know we love our property rights."

The debate over data centers has intensified nationally as the artificial intelligence boom drives record demand for the massive facilities. States are competing to attract the investments, which can mean billions of dollars and thousands of jobs, while residents push back over rising utility bills, water consumption and questions about local control. Rising electricity demand tied to data centers is also putting new strain on power grids.

Morrisey's plan addresses that pressure by requiring data center developers to coordinate with PJM, the regional grid operator, and other interstate grid managers. It also frames the facilities as infrastructure with national security stakes, positioning West Virginia as a strategic player in the country's technological competition with China.

A spokesperson for House Speaker Roger Hanshaw said the principles originated in the governor's office but mirror the legislative intent of the 2025 law. Hanshaw has previously voiced support for data center development, telling the Warren Tribune-Chronicle that Charleston is "not only working with industrial partners as friends and allies to grow and diversify an economy, but also to regulate appropriately industries that are important to the communities in which they're situated."

West Virginia's income tax has already been on the decline. Former Gov. Jim Justice, now a U.S. senator, signed a record 21 percent cut during his time in office, and Morrisey followed up with an additional 5 percent reduction this year. The top marginal rate currently stands at 4.58 percent.

Morrisey framed the new framework as a way to channel the economic potential of the industry toward residents rather than leave them bearing its costs.

"This shared framework gives us the exact blueprint we need to attract billions in private investment, create thousands of high-paying construction and technology jobs, lower taxes for our citizens, and revitalize economically distressed regions, all while preserving the wild and wonderful state we call home," Morrisey said.

The plan now moves into a broader political conversation in the state, where the balance between welcoming new industry and protecting local interests remains unresolved.