Governor Kim Reynolds signed House File 976 on June 6, 2025. This bill originated from the Department of Revenue. While the Department’s own proposals were noncontroversial, the legislature added significant language impacting sales and use tax exemptions for data centers.
Iowa has provided a set of three sales tax exemptions for data centers for over a decade. Prior to HF 976, data centers with investments of $200 million or more were allowed to indefinitely purchase computers, equipment, and energy, including electricity and backup power generation fuel, exempt from Iowa sales and use tax. Effective upon the enactment of HF 976, new and expanded data centers are subject to limits of the exemption for electricity and backup power generation fuel.
The new exemption limits depend on the size of the city where the data center is located. Data centers in cities with more than 30,000 people can claim the exemption on these energy sources for 10 years, and data centers in cities with fewer than 30,000 people can claim the exemption for 15 years. There is no change to the other purchases eligible for the exemption. Also, data centers in operation prior to June 6, 2025, that do not add to their property are not limited in their duration of the exemption.
These new provisions leave open several unanswered questions about what triggers the new exemption limits. These issues are left to the interpretation of the Department, either through administrative rulemaking or in response to a business’s request for a binding Declaratory Order. Without clarity on some of these issues, it may be difficult for businesses to plan future Iowa data center projects.
HF 976 makes several other notable changes to Iowa’s data center exemptions. The law now defines “site preparation,” an existing but previously undefined term in the law impacting the timing of eligible investment in a data center project. “Site preparation” generally includes preliminary changes to land and storage of construction equipment and excludes the purchase or installation of items to be used in the data center.
HF 976 also adds a provision stating businesses that lease and operate data center facilities from the owners of the data center are eligible to claim the exemption. In August 2024, the Department published a trio of Declaratory Orders about its data center exemptions in which it determined a group of entities owning, furnishing, and operating a data center cannot aggregate their qualifications for the exemption. This new language from HF 976 does not necessarily override the Department’s determination in those Declaratory Orders – a lessee may be eligible to claim the exemption, but the lessee likely still needs to meet the qualifying investment criteria set out in the law on its own.
Lastly, data centers are now required to register with the Department and file annual reports about their purchases of electricity and backup power generation fuel. Data centers will also be required to use a new exemption certificate to be produced by the Department beginning on February 1, 2026, for these purchases.
From a tax incentive perspective, data centers enjoy a much broader choice of site locations offering exemptions than they did when Iowa first enacted its sales tax exemption. Time will tell whether these new provisions impact a data center’s likelihood of choosing Iowa for its next facility.
Contact one of our BrownWinick tax attorneys with questions about these changes for data centers or any other Iowa tax issues to determine how they impact your business.
