Wyoming Data Center Investment & Tax Policy

Wyoming is outcompeting California in attracting data centers. In fact, by two important metrics, a state more popularly associated with cow chips than computer chips is beating out 45 states and the District of Columbia on data center investment.

To be sure, Silicon Valley still has more data centers: California has 326 facilities to Wyoming’s 15. But Wyoming has a population of about 590,000 compared to California’s 39.4 million. California has 0.83 data centers per 100,000 people, while Wyoming has 2.55—more than three times as many as California per capita, and twice the national average.

Table 1. Data Centers per 100,000 Residents

Source: Data Center Map; US Census Bureau; TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation calculations.

Wyoming, meanwhile, has 2.87 data centers per $10 billion in gross state product, about 3.7 times California’s 0.78 per $10 billion and 4.1 times the national average. The Cowboy State is punching far above its weight. Only five states outrank it on either measure: Virginia, Iowa, and Oregon on both, and Montana and North Dakota on one measure each.

Table 2. Data Centers per $10 Billion in Gross State Product

Source: Data Center Map; US Census Bureau; Tax Foundation calculations.

The keys to Wyoming’s success? A cool climate, an auspicious location along a fiber corridor paralleling I-80, inexpensive land, affordable energy, low disaster risk, and sound tax policy.

But there’s a risk that Wyoming could squander its tax competitiveness by imposing sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on data centers’ machinery and equipment (M&E) purchases. That disadvantage could overwhelm the state’s other built-in advantages.

Because most sales taxes are destination-based (meaning that they are imposed where a product is purchased or used, rather than at the location of the producer or seller), sales taxes on final consumption do not impede a business’s ability to compete with out-of-state competitors. Out-of-state customers are taxed at their own local rate, or are legally required to remit use taxes at their own local rate, not at the rate in the business’s jurisdiction.

As soon as taxes are imposed on a business’s own purchases, however, businesses in that jurisdiction are placed at a disadvantage against competitors not subject to such taxes in their own states. These taxes represent an additional cost of production that their competitors based elsewhere do not bear, even if they sell into the same markets.

Data centers are capital-intensive operations. Initial capital investment can run into the billions of dollars, and their hardware must be replaced regularly—partly to avoid technological obsolescence and partly because the chips physically degrade within a few years under the pressure of data center operations. For an AI accelerator, the useful life of hardware can be as little as two or three years, while traditional data centers might have a three- to five-year refresh cycle.

If state and local governments levy sales tax on data center hardware, the resulting tax burden threatens the profitability of the whole enterprise. In fact, absent sales tax exemptions, data centers could face effective tax rates of 90 percent on profits—and for the most cutting-edge operations, the tax burden could turn the data center into a money-losing proposition.

Exempting data center machinery and equipment from the sales tax isn’t special treatment; it’s the sales tax operating as intended. An ideal sales tax falls exclusively on final consumption, and while no state’s actual sales tax lives up to that ideal, the taxation of data center equipment would be extremely aggressive.

In some states, machinery and equipment are exempt from sales taxation by default. Other states theoretically tax data centers’ M&E—sometimes because their exemption only applies to manufacturers—but provide specific exemptions for data centers’ M&E, provided the operations meet investment or job creation criteria. Actually taxing data center hardware purchases is rare, but it does happen, with California as the most notable example.

In a recent study, we calculated annual state and local tax liability for a $1 billion data center. California’s tax burdens were by far the highest, even for the “mature” operation that had already made its initial investments, with a state and local effective tax rate of 67 percent each year. But first-year tax burdens are almost four times higher—massively outstripping profitability—due to a $72.6 million first-year sales tax bill. California was the only state in our study to impose sales tax on data center equipment.

If Wyoming denied sales tax exemptions to data centers, its tax burden would soar, with effective rates far exceeding those of most competitors. The state’s other advantages would not be enough to make Wyoming attractive when many of the same qualities—like climate, location, and energy costs—can be found elsewhere. If poor sales tax treatment makes companies think twice about locating data centers in California, it could easily lead them to pass over Wyoming for Nebraska or Iowa, or countless other options.

The chart below shows average annual state and local tax liability for a $1 billion model data center over its first 10 years of operations across 12 jurisdictions. Cheyenne is modeled twice: first under current policy, which yields a highly competitive tax burden, and then again with sales tax on equipment.

Virtually all competitors exempt these purchases from sales tax, and many also exempt them from tax as tangible property once they are purchased. Some states do this by definition, by not imposing tangible personal property taxes. Other states, like Georgia and Nebraska, have exemptions lasting the first 10 years or more. In Wyoming, this equipment is taxed from day one. Tax the purchase under the sales tax as well, and suddenly Wyoming goes from highly competitive to highly uncompetitive.

But should Wyoming policymakers care if data centers go elsewhere? Yes, for at least two important reasons.

First, data centers create jobs and attract new businesses, and Wyoming needs both. Data centers pay well, but the greater impact is often in indirect employment. Since data centers are constantly reinvesting due to the industry’s rapid pace of change, they create ongoing demand for contractors, suppliers, and construction workers. They also act as anchors for broader tech ecosystems, with other tech companies expanding operations near large “hyperscale” data centers. The establishment of “colocation” facilities that house and process data for third parties, meanwhile, builds out the capacity to support local technology businesses. A University of Wyoming study estimated that the Prometheus Hyperscale Data Center in Uinta County would create 16,959 jobs at peak.

Second, data centers generate substantial local tax liability. These operations pay real property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. on costly facilities, and the tangible personal property tax on data center equipment, for all its flaws, is also a significant source of revenue for Wyoming’s local governments. A tax environment that chases away this burgeoning industry hurts localities already counting on the revenue from these operations.

Our model data center pays $6.24 million a year to Cheyenne, before taking any local license fees into account. Some of the larger data centers the state is attracting are likely to pay much more. The University of Wyoming study estimated that the larger Prometheus Hyperscale data center would generate $5.23 million in direct local tax revenue in 2028 while producing another $11.20 million in indirect and induced tax revenue.

Wyoming lawmakers have considered applying sales tax to data center equipment before, ultimately rejecting the idea. Since then, the industry has grown dramatically in the state. Policymakers should avoid undercutting one of the state’s fastest-growing sectors through discriminatory taxation.