A senior Senate Democrat wants Washington to start taxing the money data centers take in — not the profit they make, but the gross revenue that flows through them — and because data centers are the physical buildings where email, cloud storage, business software and social media actually live, critics say the cost lands on every customer who uses those services.

The proposal came in a white paper released Aug. 6 by Sen. Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee. Nothing has been introduced as legislation yet. Wyden is collecting public comments on the framework through Aug. 31 and expects to release draft legislative language this fall, which means the fight over it runs through the rest of the year.

The plan has two halves. The first strips existing investment incentives out of the tax code as they apply to data centers, on the argument that a construction boom of this size no longer needs tax-advantaged help. The second creates what Wyden calls a Data Center Public Investment excise tax to generate a steady revenue stream. The white paper would also bar Opportunity Zone funds from investing in new data centers, stretch out the cost-recovery periods for the capital assets used to build and supply them, and effectively shut investors out of new data center investment through real estate investment trusts.

The excise tax is the piece drawing the heaviest fire, because of how it is measured. It would be a gross receipts tax at a rate in the low single digits — assessed on revenue rather than earnings. A company running a low-margin facility pays the same percentage of its top line as one running a highly profitable one, and the standard business response to a gross receipts levy is to pass it down the chain to the customer.

That is the basis of the objection from Americans for Tax Reform, which labeled the plan a national internet tax. “This tax will be paid by anyone who uses the internet,” said James Erwin, the group’s director of innovation technology, who argued the levy would show up in the cost of email, family photo storage, small business operations, cloud storage and posts on Instagram, X, TikTok and Facebook. Erwin also accused the senator of walking away from a long record as a defender of an open and accessible internet.

For small and mid-sized businesses, that is the practical exposure. A corner accounting practice, a distributor running inventory software, a medical office storing records — none of them own a data center, but all of them rent capacity inside one. The white paper suggests carving out what it calls internet infrastructure without defining the term, and it indicates cloud computing would not be exempt, which is precisely the layer most companies buy.

Wyden’s stated reasons are local. He points to land use, water consumption and the effect of enormous power draws on residential electricity rates, and his office says revenue from both halves of the plan should go toward supporting workers displaced by artificial intelligence. The Finance Committee release describes the proposals as a first step toward safeguarding taxpayer dollars. The paper also reaches into orbit, applying the tax to data centers built in space — the kind of facility Elon Musk and Jeff Bezos have discussed.

There are limits built in. Exemptions are contemplated for internet infrastructure, corporate IT departments and small local data center operators, and assets already in place before the start of 2024 would largely be shielded, since the white paper treats the buildout as having begun in earnest at the end of 2023.

The White House is going in the opposite direction. Assistant press secretary Liz Huston said President Trump is locking in American leadership in artificial intelligence over China while requiring data centers to cover their own power, water and utility costs, and argued the administration’s approach delivers lower costs for working families and small businesses. On the ratepayer question, where the two sides actually agree on the problem, the administration’s answer is supply rather than taxation: a White House official said more than 200 utilities, developers, cooperatives and state leaders have joined a Ratepayer Protection Pledge aimed at building out enough generation to hold prices down.

Wyden’s plan is not the most aggressive proposal on the table. Sen. Bernie Sanders of Vermont and Rep. Alexandria Ocasio-Cortez of New York have called for a full moratorium on data center construction. Rep. Ro Khanna introduced a separate measure the same day that would let local governments block data center projects and protect those decisions from being overridden by their states.

What businesses can do in the meantime is straightforward: the comment docket is open until Aug. 31, and the terms set now — especially the definition of internet infrastructure and whether cloud services are inside or outside the tax — will determine how much of this ends up on their monthly bill.

JBizNews Desk | Washington

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