Best U.S. States for Data Center Development in 2025: Incentives, Power Costs, Connectivity, and Design

Executive Summary:Data centers are booming across the United States as demand for cloud services, AI, and digital infrastructure soars. This report analyzes the best states for data centers development in 2025 from a business perspective, focusing on four critical factors: (1) tax incentives and subsidies, (2) power rates and energy infrastructure, (3) fiber latency and proximity to major internet exchanges, and (4) architectural and site considerations (cooling systems, modularity, sustainability, and rural vs. urban integration). We compare key metrics by state – including tax breaks, industrial power costs, and connectivity – and highlight the states currently most attractive for new or expanding data centers. The goal is a comprehensive, investor-oriented overview that remains accessible for a broad audience.

Introduction: A Growing Need for Data Infrastructure

The demand for data center capacity is growing at an unprecedented rate, driven by cloud adoption, big data, and emerging AI applications. Supply has struggled to keep up – vacancy rates are near zero and prices for space are risingg. Analysts project U.S. data centers will consume between 5% and 9% of all U.S. electricity by 2030 (up from about 4% today), underscoring the massive scale of expansion underway. This growth is pushing data center developers and investors to carefully evaluate where to build next.

Multiple factors determine the business attractiveness of a state for data center development. Foremost are tax incentives – nearly three-quarters of U.S. states now offer targeted tax breaks to lure data center investments. Power costs and reliability are equally crucial, as electricity is one of the largest ongoing expenses for data centers and recent capacity constraints have made energy a gating factor in some markets. Fiber connectivity and latency to end-users is another key consideration: next-generation applications (like autonomous vehicles and “smart” factories) demand ultra-low latency and high bandwidth, making proximity to major Internet Exchange Points (IXPs) and backbone fiber routes a strategic advantage. Finally, facility design and location considerations – from cooling systems suited to the local climate to scalable, modular designs and sustainable building practices – can significantly impact operating costs and community acceptance.

In the sections that follow, we examine these factors in detail and identify the U.S. states that currently offer the most attractive mix of incentives, cost advantages, infrastructure, and supportive conditions for data center projects. Tables and comparisons are included to provide an at-a-glance view of how key states stack up on tax breaks, energy rates, and connectivity. Whether you are a developer seeking the optimal site or an investor evaluating regional opportunities, this report offers a data-driven look at the top U.S. states for data center development in 2025.

Tax Incentives and Subsidies: Competing for Data Centers Across the USA

More than 36 U.S. states have enacted data center tax incentive programs as of 2024. These incentives are powerful tools for states to attract data center projects, which bring in capital investment, jobs, and long-term tax revenue. The incentives vary widely in structure and scope, but typically include some combination of sales tax exemptions, property tax abatements, tax credits, or utility tax relief for qualifying data center facilities. Table 1 summarizes the tax incentive programs in several leading states:

State	Data Center Tax Incentives (Summary)
Virginia	Sales and use tax exemption on data center equipment for facilities meeting investment & job thresholds (e.g. ≥ $150M capital investment + 50 jobs; lowered to $70M + 10 jobs in high-unemployment areas). Recent proposals extend tax credits on qualifying equipment for an additional 15 years under a new “Mega Data Center Incentive Program”.
Texas	Sales tax exemption on data center equipment and electricity for large facilities (must have ≥ 100,000 sq. ft. of space, ≥ $200M investment, and ≥ 20 qualified jobs). Texas has no state income tax and offers local tax abatement deals, creating a generally favorable tax environment.
Arizona	Transaction Privilege Tax (sales tax) and use tax exemptions on equipment, power, and construction for data centers investing ≥ $25M in rural counties (≥ $50M in urban counties). This program, first enacted 2013, was extended through 2033. It now also covers installation, assembly, and maintenance of equipment. Arizona’s incentive requires participating companies to report investments and use more renewable energy to qualify for additional utility relief.
Iowa	Multiple sales and use tax exemptions for data centers – covering servers, electrical equipment, cooling systems, and backup generators – with investment thresholds as low as $1 million for eligibility. Larger projects (≥ $200M) qualify for broader exemptions. Iowa also eliminates property tax on equipment. These generous incentives cost the state over $150 million annually in foregone tax revenue, but have attracted major facilities.
North Carolina	Sales tax exemption on both data center equipment and electricity used by the facility, for qualifying investments of ≥ $150M in designated Tier 1 (economically distressed) counties or ≥ $225M in other areas. North Carolina’s program effectively zeroes out sales tax on huge operational costs (power), a significant long-term savings for operators.
Nevada	Partial sales and property tax abatements for data centers investing ≥ $25M and creating at least 10 jobs at or above the average wage. Nevada has used negotiated tax abatement packages to lure large projects (e.g. the state approved $89M in abatements for Switch’s Las Vegas facility). No corporate income tax also boosts its appeal.
Oregon	While Oregon has no statewide sales tax (an inherent advantage for purchasing expensive IT hardware), the state also allows up to 15-year property tax exemptions in designated Enterprise Zones (e.g. in Hillsboro and Prineville) for qualifying data center investments. This combination – no sales tax and long-term property tax abatement – can translate to tens of millions in savings for large-scale data centers.

Table 1 – Examples of State Tax Incentives for Data Centers (USA). Many other states likewise offer incentives. For instance, Illinois rolled out a data center tax exemption in 2019 (requiring $250M investment and 20 new jobs) that, notably, mandates the facility achieve carbon-neutral operations within two years. Minnesota provides a 20-year sales tax exemption on equipment and energy (and no property tax on equipment) for data centers ≥ 25,000 sq ft and $30M investment. South Carolina exempts sales tax on equipment and electricity for projects over $50M with 25+ jobs. Ohio abates sales tax for data centers investing ≥ $100M with $1.5M annual payroll. As of Winter 2024/25, at least 36 states have some form of data center incentive legislation in place – a dramatic increase from just a decade ago.

These incentives often come with conditions to ensure community benefits. Some states tier the incentives by investment size or location (e.g. Virginia’s lower thresholds for “distressed” rural localities). Others require job creation minimums – although data centers are not labor-intensive – which can range from 5–50 jobs depending on the state. A few states attach unique requirements: for example, to qualify in Nevada a project must create 10 permanent jobs for a 10-year tax abatement (50 jobs for a 20-year abatement). Illinois requires certified data centers to become carbon-neutral within 2 years of operation, reflecting a sustainability emphasis. Minnesota defines eligible projects as having “sophisticated fire suppression” and enhanced security systems as part of the incentive criteria. Such provisions underscore that tax breaks are a means to an end – states want not just investment, but also local employment, use of green energy, and safe operations as part of the bargain.

From an investor’s perspective, these tax incentives in the USA can significantly tilt the total cost of ownership for a data center. Sales tax exemptions on $100+ million of server and construction equipment, for instance, directly save on upfront capital costs. Ongoing exemptions (like not paying sales tax on electricity or having a 15-year property tax holiday) improve operating margins and cash flow stability. It’s common for large projects to negotiate stacked incentives – combining state programs with local county/city tax abatements or utility rate discounts. However, the complexity of these packages means careful due diligence is required. Developers must ensure they meet all qualifying criteria (investment deadlines, reporting, job levels, etc.), as missing a requirement could nullify the tax break. Overall, tax incentives have become a cornerstone of data center site selection in the U.S., and states continue to refine their offerings to stay competitive in attracting these high-tech facilities.

Power Rates and Energy Infrastructure: The Cost of Keeping Servers Running

Power is the lifeblood of data centers – and one of the largest operating expenses. Even slight differences in electricity rates can translate to millions of dollars per year for a large facility. Equally important is the capacity and reliability of the electric grid in a given state, as data centers require massive, continuous power draws and cannot tolerate extended outages. This section compares industrial power rates (2025) and energy factors across key states:

State	Avg Industrial Power Price <br>(cents per kWh, Apr 2025)	Notable Energy Factors for Data Centers
Iowa	6.0 ¢/kWh	Extremely low-cost electricity thanks to abundant wind energy (Iowa derives ~55% of its electricity from wind farms). Ample generation – Iowa exports surplus power out-of-state. Reliable Midwest grid with capacity for large new loads.
Texas	6.5 ¢/kWh	Competitive energy prices from a mix of natural gas and wind. However, Texas’s independent ERCOT grid has faced reliability challenges – it accounted for 13% of U.S. power outages in 2024. Data center hubs like Dallas have strong utility infrastructure, but extreme weather events have shown grid vulnerabilities.
Georgia	7.0 ¢/kWh	Low electric rates in the Southeast, partly due to Georgia’s diverse generation (natural gas, nuclear, etc.). The state’s main utility has invested in robust transmission to support Atlanta’s growing data center cluster. Reliable grid with few constraints currently.
Nevada	7.0 ¢/kWh	Electricity in Las Vegas is ~35% cheaper than the U.S. average by some estimates. NV Energy’s large-scale solar and cheap natural gas contribute to low rates. Nevada has ample power capacity for new data centers, which is fueling nearly 1000% projected growth in Vegas/Reno capacity.
Arizona	7.9 ¢/kWh	Moderate power costs, significantly lower than neighboring California. Arizona’s energy mix (natural gas, solar) yields lower production costs, which helped Phoenix overtake Silicon Valley as North America’s largest data center market. Utility APS has dedicated data center rate programs and new transmission to support Phoenix’s 553% growth trajectory.
Oregon	7.9 ¢/kWh	Low-cost hydropower in the Pacific Northwest gives Oregon attractive rates. Certain counties (e.g. those served by BPA hydroelectric power) offer industrial rates even lower. The grid in central Oregon easily accommodates large hyperscale campuses (Google, Meta) with renewable-rich power.
Virginia	9.1 ¢/kWh	Slightly above the national industrial average. Northern Virginia’s Dominion Energy supply is affordable (Ashburn’s rates have been ~20% below U.S. average historically), but surging data center demand is straining capacity. Virginia now consumes more power than it produces, relying on imports via PJM interconnect. Dominion provides ~1 GW to Loudoun County alone, and new data center projects have faced potential delays pending grid upgrades.
North Dakota	5.5–6.0 ¢/kWh (est.)	One of the lowest-cost power states (owing to coal, wind, and low population demand). ND is highlighted as an emerging option due to “stranded” power – it exports ~33% of the electricity it generates. The cool climate also provides many free-cooling days, reducing energy needed for chillers. Extremely stable grid with excess capacity; by one analysis, a 100MW data center in ND could save $40–50M in power costs over several years vs. Virginia or Texas.

Table 2 – Industrial Electricity Costs and Grid Factors by State. Sources: Energy Information Administration data for power prices; various reports for energy mix and grid notes.

Several insights emerge from the above comparisons:

• The cheapest power for data centers is found in the middle of the country. States like Oklahoma and North Dakota enjoy industrial rates in the mid-5¢ per kWh range, thanks to local energy resources and lower demand. Iowa and Texas, at around 6¢, also undercut most coastal markets. In contrast, higher-cost states like California or New York often see industrial rates above 9–10¢ due to pricier generation and taxes. Over the course of a year, a 30 MW data center load (typical for a large facility) running at full capacity would spend ~$15.8 million on electricity at 6¢/kWh versus ~$24 million at 9¢ – a huge difference in operating cost.

• Grid reliability and capacity are now front-and-center issues. It’s not just the price per kWh, but whether the power grid can supply the megawatts needed when and where needed. Northern Virginia’s data center concentration has begun to test the limits of the local grid; indeed, in 2023 the region’s utility had to warn that new data centers might face connection delays due to transmission constraints. Virginia recorded more power outages from extreme weather than most states (94% of outages caused by storms), highlighting resilience concerns. Texas, operating an isolated grid (not synchronized with the national grids), infamously suffered a major outage in 2021 and had numerous smaller disruptions; this raised questions for data center operators about backup power and dual-feed redundancy in Texas locations. On the other hand, states like North Dakota or Nebraska have surplus generation and robust grids originally built for heavy industry, meaning new data centers can plug in substantial loads with less pushback.

• Energy sourcing and sustainability are part of the equation. Many data center operators, especially hyperscale cloud companies, have 100% renewable energy goals. States rich in renewables (wind in the Plains states, solar in the Southwest, hydro in the Northwest) offer easier access to green power. For example, a developer in Iowa can directly procure wind energy from local farms to claim a renewable supply for their facility. In contrast, a data center in a coal-heavy state might need to buy renewable energy credits or invest in off-site renewables to meet sustainability targets. Some state incentives explicitly encourage or require renewable use – Arizona’s updated incentives ask for increased renewable investment in exchange for utility tax relief. Illinois’ carbon-neutral requirement effectively forces use of carbon-free energy or offsets. Therefore, states with cleaner grids or policies supporting green energy can be seen as more forward-looking locations for environmentally conscious data centers.

In summary, power considerations (cost, availability, reliability) can make or break a data center business case. Many of the best states for data centers from a power perspective are those with low-cost generation and proactive utilities that can serve large new loads. It’s notable that some traditionally “overlooked” states are being re-evaluated purely on energy merits – for instance, North Dakota is touted in a recent industry report as a dark-horse best location due to its cool climate and stable, cheap grid. Energy is indeed the new gold in data center site selection.

Fiber Connectivity and Latency: Location Matters for Data Speed

Data centers don’t exist in isolation – they are nodes in a vast network. The fiber connectivity of a location, and the resulting network latency to end-users and other data hubs, is a critical factor in choosing one state over another. In the early days of cloud, many data centers were clustered in just a few regions (Northern Virginia, Silicon Valley, etc.), but modern applications and content delivery require a more distributed footprint to minimize latency. This has spurred growth in secondary markets and increased the importance of being near Internet Exchange Points (IXPs) and major fiber routes.

Northern Virginia (Virginia) – specifically the Ashburn area of Loudoun County – is often called “Data Center Alley” in large part due to its unparalleled connectivity. Approximately 70% of the world’s internet traffic passes through Northern Virginia via MAE-East and other exchange hubs in Ashburn. Dozens of carriers and fiber providers interconnect there, resulting in extremely low latencies to major East Coast population centers. For example, Ashburn data centers can reach Washington D.C. in ~2–3 milliseconds and New York City in ~8–10 ms round-trip. This ultra-low latency and dense bandwidth make Virginia the default choice for many latency-sensitive deployments (financial trading platforms, real-time applications, etc.). It also hosts critical subsea cable landings indirectly – while the transatlantic cables land in New Jersey, they are routed straight into Northern Virginia’s hubs, making Virginia a gateway for transoceanic traffic. This concentration of connectivity is self-reinforcing: networks want to be where other networks are, so Ashburn remains king of interconnection. States vying to compete have even introduced incentives to draw data centers away from Ashburn to less congested areas – Virginia itself extended tax breaks to investments outside Northern Virginia to encourage geographic spread within the state.

Dallas/Fort Worth (Texas) is another strategic connectivity hub. Dallas is home to major IXPs and carrier hotels (e.g. the Infomart and Equinix Dallas facilities) that link the country’s east-west fiber routes. Geographically, Dallas sits at a crossroads: roughly equidistant latency to both coasts (on the order of ~20–30 ms to data centers in Silicon Valley or Virginia). It is also a key interchange for data traffic to and from Latin America, with many undersea cables from South America terminating in Texas or nearby Florida before connecting onwards. A data center in Texas can thus serve North American users reasonably well and even reach South American markets with better latency than a Northern location could. This is one reason Dallas/Fort Worth is the #3 largest data center market in the U.S. by capacity (after Northern Virginia and Phoenix) – it combines a favorable business climate with strong connectivity and central geography.

Phoenix (Arizona) has rapidly risen to prominence as a data center location in large part by leveraging its connectivity advantages relative to California. Phoenix sits on multiple long-haul fiber routes that connect Los Angeles and the West Coast to the rest of the country. By establishing large carrier-neutral data centers, Phoenix providers have made it easy for companies to bypass more expensive California hubs. The result: Phoenix now has more data center capacity in development than Silicon Valley, and was recently noted as the largest primary market in North America for data centers. Latency from Phoenix to Los Angeles is very low (~5–6 ms), meaning Phoenix can effectively serve Southern California’s user base without being physically in California. Connections from Phoenix eastward (to Dallas, to Chicago, etc.) are also robust. The presence of cloud on-ramps and big exchanges in Phoenix (like the DE-CIX Phoenix IXP) further cements it as a connectivity-rich location.

Atlanta (Georgia) is the fiber crossroads of the U.S. Southeast. It hosts one of the major Internet exchanges (such as the 56 Marietta Street carrier hotel where dozens of networks peer). Any data traffic destined for the Southeast US can often be handed off in Atlanta. For latency-sensitive content (streaming, gaming, etc.), having a data center in Georgia means you’re within 5–15 ms of major cities like Atlanta, Charlotte, Orlando, and even South Florida (Miami ~15–20 ms from Atlanta). Georgia’s growing data center ecosystem, combined with its connectivity and relatively low costs, have led to significant new investments (Microsoft’s $1.8B multi-site development in greater Atlanta, for example, which will add over 300 MW of capacity). Atlanta’s trajectory – 484% projected growth in capacity – shows how a state can leverage its strategic network location to become a top data center destination.

Other states also have notable connectivity angles:

• Illinois (Chicago) – Chicago has long been one of North America’s largest internet hubs (the former Mae West and current Equinix/CHI facilities), sitting at the intersection of transcontinental fiber routes. A data center in Chicago enjoys latency around ~15 ms to New York and ~30 ms to California. However, Illinois’s higher taxes and costs have somewhat dampened new growth; some companies choose nearby states (like Iowa or Indiana) for lower costs while still connecting through Chicago backbones.

• Oregon/Washington – Hillsboro, Oregon (outside Portland) has become a major West Coast connectivity node, especially for links to Asia. Multiple submarine cables from Asia now land in Oregon, offering an alternative to the traditional landings in Los Angeles or Seattle. Oregon data centers in Hillsboro can directly exchange traffic with Tokyo or Singapore with minimal hops. Washington State (Seattle area) also has significant exchanges (the SIX in Seattle), but new development has slowed due to higher costs and limited land. Still, the Pacific Northwest remains attractive for network routing – which is why large cloud players maintain presence there despite the recent slowdown in expansion.

• New York/New Jersey – While not a focus of this report (given their high costs), it’s worth noting the NYC/Newark area is a huge IXP location and the landing point for most transatlantic cables. Any company needing ultra-low latency to the New York financial markets might colocate in New Jersey data centers (where latencies of <2 ms to Manhattan are possible). However, because of expense and space constraints, many firms choose Virginia for primary East Coast hosting and rely on New York merely for specialty use-cases.

To visualize the importance of connectivity, one can imagine a fiber latency map of the US: the fastest routes fan out from Ashburn (covering the East), Dallas (covering central and south), and Silicon Valley/Los Angeles (covering the West). Secondary hubs like Chicago and Atlanta pick up regional traffic. This is why the best states for data center deployment often coincide with these hub locations – they ensure that data can reach end-users quickly and cost-effectively.

Finally, emerging trends like edge computing are pushing smaller facilities into even more states and cities. Not every workload can reside in Ashburn or Phoenix if ultra-low (<5 ms) latency is required to, say, a rural telecom network or a city’s IoT infrastructure. States that might not traditionally be on the data center map (for instance, Ohio, Missouri, or Alabama) are seeing new edge data centers or regional cloud nodes. These typically are smaller installations but indicate that latency requirements are driving a broader geographic distribution of data infrastructure. Even so, for large-scale facilities, being in or near the major exchange-rich metros is a huge advantage, and states offering a mix of good connectivity and incentives stand out.

Architectural Perspectives: Cooling, Design Scalability, Sustainability, and Site Selection

Beyond financial and network factors, data center developers must consider engineering and design aspects that vary by location. Climate, available land, and local regulations all influence how a facility is built and operated. In this section, we explore key architectural considerations – cooling systems, modularity, sustainable design, and whether to build in rural vs. urban settings – and how these play into the attractiveness of different states for data center projects.

Cooling Systems: Tailoring to Climate and Efficiency

Cooling the IT equipment is one of the biggest ongoing costs (and technical challenges) in data center operations. There are multiple approaches to cooling: traditional air-cooled systems (blowing chilled air through servers), liquid cooling (either direct-to-chip cooling plates or immersive cooling where servers are submerged in dielectric fluid), and strategies like free cooling (using outside cold air or water when climate permits). The choice often depends on a state’s climate and water resources, as well as the density of computing power being deployed.

In cooler climates (or seasons), free cooling can dramatically cut costs. For example, a data center in North Dakota or Minnesota can use outside air for much of the year to cool servers, or circulate cold water from a nearby river or chillers with minimal compressor use. This reduces the need for power-hungry chillers. Many facilities in the Pacific Northwest and Upper Midwest boast annualized Power Usage Effectiveness (PUE) numbers around 1.2 or lower, partly due to free cooling in cool months. By contrast, in hot and arid states like Arizona or Texas, traditional air cooling must work harder year-round – unless more advanced techniques are adopted.

Liquid cooling is gaining traction, especially for high-density computing racks (like AI training clusters) where air cooling is less efficient. One notable example is in Houston, Texas, where Shell has implemented immersion cooling tanks at the Element Critical data center. Servers are submerged in a special non-conductive fluid (Shell’s own formula derived from natural gas) that carries away heat much more efficiently than air. This allows for packing more computing power into a smaller space without overheating, an approach well-suited for hot climates or anywhere electricity costs for cooling are high. As a bonus, immersion systems can reduce overall water usage (since cooling towers might be used less or eliminated). In states where water is scarce or expensive (e.g. desert states like Nevada), we see interest in water-free cooling solutions – either air cooling with no evaporative water use or liquid cooling in closed loops.

Water-cooled systems can also be innovative. In California, which has both heat and water constraints, companies like Nautilus Data Technologies took a novel path: a floating data center that uses the adjacent water body for cooling. The Stockton 1 data center in California is built on a barge and circulates water from the San Joaquin River through heat exchangers to dissipate heat. This design achieved an impressive PUE of 1.15, showing that with creative engineering, even warm regions can leverage “free cooling” by tapping into large water sources. Of course, such designs are site-specific, but states with accessible lakes, rivers, or cool groundwater (for geothermal cooling) can offer such options.

In summary, when evaluating states, climate plays a role in cooling strategy: a cooler state can mean simpler cooling infrastructure and lower energy costs (favoring states like Oregon, Washington, Minnesota). Hot states can still be top choices, but operators there often invest in cutting-edge cooling tech (immersion in Texas, or hyper-efficient air economizers in Arizona) to compensate. Some states also consider water usage in data center permits – for instance, a county might limit groundwater draw for cooling – making dry cooling technologies attractive in those locales. The trend across the board is toward more efficient cooling to improve sustainability and reduce cost, which benefits developers in any state who adopt these innovations.

Modularity and Scalability of Design

The ability to scale up a data center quickly – or build it in modular phases – is a significant consideration for developers and investors. Modular design can refer to deploying pre-fabricated modules (e.g. containerized server units) or simply designing a campus in such a way that additional phases can be built as demand grows. Different states and site types lend themselves to different approaches.

In states with abundant land and lower land costs, data center operators often pursue sprawling campus builds. For example, in Texas, the CyrusOne DFW3 campus in suburban Dallas spans 90 acres and ultimately will support multiple large data center buildings totaling nearly 1 million sq. ft. Such a campus is designed for scalability: power and fiber infrastructure is built out to allow incremental construction of data halls over several years. Similarly, Facebook (Meta) has massive multi-building campuses in Iowa and Nebraska, where they bought huge tracts of land to expand as needed. The benefit of these locations is the freedom to scale horizontally – adding more one-story buildings or wing extensions without worrying about land constraints.

Contrast this with more urban or high-demand areas, where land is scarce or extremely expensive. In Northern Virginia’s Ashburn, land costs have skyrocketed to over $1 million per acre, and most parcels suitable for data centers are already taken. This is forcing a new kind of vertical modularity: building multi-story data centers to pack more servers per square foot of land. Traditionally, data centers were 1-2 stories for easier cooling and equipment hauling, but now Ashburn is seeing plans for four-story data centers. Equinix, for example, announced a four-story facility design in Loudoun County to maximize the use of its plot. In Silicon Valley, the Vantage CA1 campus in Santa Clara has six multi-story data center buildings on 21 acres, delivering 77 MW of IT load while adhering to strict space limits. These facilities are engineered for modular growth vertically: each floor can be built out or upgraded with new racks as needed. States like California, New York, and Northern Virginia – where data centers must integrate into developed areas – are leading in these multi-story, high-density designs.

From an investor viewpoint, modularity reduces risk. It means you can deploy capital in stages rather than all upfront, and respond to client demand more flexibly. States that facilitate quick expansions (through streamlined permitting or predictable building codes) are attractive. For instance, Arizona and Oregon have been praised for their straightforward permitting processes that allow phased construction. On the other hand, states or localities with lengthy permitting can hinder modular build-outs – in some California cities, each new data center phase might trigger additional environmental reviews, slowing expansion.

In summary, if a developer’s strategy is to “land and expand,” they might favor states with large greenfield sites (many in the Midwest or South) where a campus can grow over time. If the strategy is to be close to users in cities, expect to build upward and invest in structural design that supports heavy floor loading on multiple stories. Both approaches can be profitable, and we see companies executing each in different states – often a portfolio will include some sprawling campuses in low-cost states and some edge or urban sites in high-density markets.

Sustainable Materials and Energy Efficiency Standards

Sustainability has become a core consideration in data center design and a point of emphasis for many state and local governments. Modern data center projects aim for high levels of energy efficiency, renewable energy use, and even eco-friendly construction materials. States differ in their regulations and expectations here, but the trend is towards greener data centers everywhere.

A common benchmark is pursuing LEED certification or similar standards for the building. Many new facilities in top data center states achieve LEED Gold or Platinum. For example, the Skybox Houston facility in Texas was built to LEED Gold standards, incorporating features like efficient HVAC, advanced power management, and sustainable materials. In California, Vantage’s Santa Clara campus is the largest LEED Platinum-certified data center campus in North America, meaning it meets extremely high criteria for energy and environmental design. Achieving such certifications often involves using recycled or local materials, low-VOC (volatile organic compound) building products, and innovative design (like Vantage’s use of grey water for cooling to save potable water).

States like Oregon and Washington have an eco-conscious culture that aligns with sustainable data center practices – it’s no coincidence that many hyperscale operators cite the ability to use renewable hydroelectric power and free cooling there as sustainability wins. In Illinois, as noted, the requirement for carbon neutrality within two years for incentive recipients essentially forces those data centers to use renewable energy or purchase offsets to eliminate their carbon footprint – a stringent standard that goes beyond most states’ requirements. Meanwhile, Virginia has put an emphasis on using renewable energy options to power data centers (Dominion Energy has developed solar farms specifically to meet data center operators’ renewable procurement needs).

Another aspect is operational efficiency standards like PUE (Power Usage Effectiveness) targets. Many new builds aim for a PUE of 1.3 or below. As mentioned, specialized designs like immersion cooling or water-side economization can push PUE closer to 1.1. Some state or local authorities ask data center proposals to report expected PUE or plans for heat reuse, etc., as part of approvals. In Scandinavia, it’s common to reuse data center waste heat for district heating of homes – in the U.S. this is rare, but a few projects in New York and Minnesota have explored it, and states with colder climates might see future opportunities to use waste heat from big server farms to, say, warm nearby buildings or greenhouses.

In terms of materials, data center construction can involve a lot of concrete and steel. Some developers are now looking at low-carbon concrete or steel made with electric arc furnaces to reduce the embodied carbon of construction. While not mandated by states yet, such choices can be influenced by corporate ESG goals or local encouragement. States with active green building communities (like California, Washington, Massachusetts) might see more of these initiatives, though even in traditionally carbon-heavy states like Texas, the tide is turning due to corporate commitments.

The bottom line: sustainability is both a risk and an opportunity. Data centers use a lot of power and water, which can bring public scrutiny. A state that offers cheap power but only from fossil fuels might be less attractive to a company committed to 100% renewable energy – unless that company can procure renewables separately. Conversely, a state that helps companies meet sustainability goals (through green tariffs, renewable energy certificates, or incentives for efficiency) gains an edge. We see more collaboration now between big data center operators and state governments on sustainability initiatives. For instance, Georgia’s economic development officials have worked with new data center investors to ensure access to green power for those facilities, knowing it’s a factor in site selection. As sustainability standards rise, states leading in renewable energy and efficiency programs will likely attract more investment.

Rural vs. Urban Integration and Land Use Considerations

One strategic decision is whether to build a data center in a rural area (or small town) versus a more urban/suburban area. Each approach has trade-offs, and different states present different opportunities on this spectrum. Many of the most attractive states for data centers offer a bit of both: options for rural mega-campuses as well as options for urban-edge technology parks, depending on the developer’s needs.

Rural integration: Rural areas often entice data center projects with lower land costs, less density, and sometimes eager local governments that want the economic boost. States like Nebraska, Wyoming, West Virginia have specifically marketed their rural sites for data centers, highlighting easy permitting and available land. One benefit is that in a rural setting, a data center can be built with generous buffers, minimizing noise or visual impact concerns for neighbors. It also allows designs like large single-story halls (which are cheaper to build per square foot than multi-story structures). Many states even offer extra incentives for locating in rural or distressed areas – recall that Virginia dropped its requirement to just 10 jobs and $70M investment for data centers in distressed counties, specifically to entice builds outside the crowded Ashburn area. North Carolina similarly offers the lower $150M threshold only in its poorer counties, hoping companies will set up in places like Forest City or Maiden (where Apple and Facebook did build, in fact). So from a cost perspective, rural locations in states like Virginia, North Carolina, or Illinois can actually unlock better tax breaks on top of cheaper land.

However, rural sites pose challenges: power and fiber must be brought to the site, which can require significant infrastructure investment. Data centers need heavy power feeds (often dual 100+ MW substations) and diverse fiber paths. In a rural region, a developer might have to pay to extend fiber or wait for the utility to build transmission lines. States often assist with this – for example, Ohio and Nevada have given grants or expedited infrastructure upgrades for big data center projects in less developed locales. Another consideration is workforce: while data centers don’t employ many people long-term, they need skilled technicians and construction crews. In very remote areas, staffing and service availability (like specialized electricians) might be limited, but this can be mitigated by being near a small city or highway corridor.

Urban or suburban integration: Urban settings offer proximity to end-users, robust existing infrastructure, and synergies with other tech businesses. For instance, putting a data center in downtown Chicago or Atlanta means tapping directly into major fiber junctions with minimal latency. Urban data centers can also benefit from existing power grid robustness (cities tend to have multiple substations and redundancy for reliability). On the flip side, integrating into an urban fabric means addressing community concerns: noise from generators and cooling towers, aesthetics of large windowless buildings, and the strain on local power resources. In Northern Virginia’s suburban communities, rapid data center expansion has led to pushback from residents over issues like generator noise testing and the conversion of rural land (e.g., the Prince William County “Digital Gateway” plan that turned over 2,100 acres of semi-rural land to data center development, stirring controversy). As a result, permitting processes in some jurisdictions have become stricter – requiring better sound dampening, aesthetic design (e.g. facade treatments to make a data center look less industrial), and even limits on how close data centers can be to homes or schools.

Some cities have designated special zones for data centers – for example, New York City repurposed parts of old industrial neighborhoods for telecom hotels and smaller edge data centers, and Chicago has areas like Elk Grove Village that welcome data centers with appropriate zoning. Successful urban integration often means building upward (as discussed) and using technology to mitigate impact (such as liquid cooling or newer HVAC that generates less noise so neighbors are not disturbed).

From a land use standpoint, it’s a balance: Rural sites maximize physical and economic efficiency, whereas urban sites maximize network and user proximity. Many companies adopt a hybrid – placing core hyperscale facilities in rural/remote sites where costs are lowest (for general cloud compute and storage), and then placing smaller edge nodes in urban areas for latency-sensitive tasks. For a state to be broadly attractive, it ideally offers both options. Virginia is a good example: it has the dense hub in Ashburn (suburban/urban integration) and is also promoting rural areas in southern Virginia for new projects with special incentives. Texas similarly has major hubs near Dallas and Houston but also sees big campuses in rural areas outside San Antonio or in West Texas (where land is cheap and one can build massive solar farms to power the data center).

In conclusion, considerations of rural vs. urban siting will continue to shape data center development. States that streamline land use approvals and address community concerns proactively will have an easier time attracting projects in whichever setting. For example, Georgia pre-zoned large tracts outside Atlanta for data centers, smoothing the way for Microsoft’s huge new campus. Developers will weigh these factors along with everything else – sometimes the decision might be to pay more to be near the city for strategic reasons, and other times to go off the beaten path for cost savings. The good news is that as data centers become essential infrastructure, many communities (urban and rural alike) are recognizing the need to accommodate them in a mutually beneficial way.

Leading States for Data Center Development in 2025: Profiles and Outlook

Bringing together all the above – incentives, power, connectivity, and design environment – which U.S. states emerge as the most attractive for data center development today? Below we profile several of the top contenders, each excelling in multiple categories:

• Virginia – The Data Center Alley: Virginia remains the #1 state for data centers by capacity and deployments. The Northern Virginia region (Loudoun & Prince William counties) offers an almost unbeatable trifecta: substantial tax incentives (including extended tax exemptions on equipment), relatively cheap and stable power (Dominion’s rates ~20% below U.S. average in Ashburn, albeit with growing demand), and the richest connectivity on the globe (Ashburn handles 70% of internet traffic with latency to major East Coast cities in single-digit milliseconds). Virginia has a strong tech workforce and 30+ years of data center construction expertise locally, giving new projects access to experienced contractors. The state government actively supports the industry, proposing expansions of incentives and working on the power supply issues. One caution: Northern Virginia’s rapid growth means land and power are becoming scarcer commodities – as noted, land prices have soared and the grid is under strain. Thus, Virginia’s future growth may depend on pushing out to new areas (which the state is encouraging via lower rural thresholds) and on infrastructure upgrades. Outlook: Virginia is likely to stay a premier data center hub, especially for East Coast and government-focused deployments, but we may see more projects in southern or western Virginia as Ashburn fills up.

• Texas – The Rising Giant: Texas has firmly established itself as a top-tier data center state, with major hubs in Dallas/Fort Worth, Houston, and growing clusters in Austin and San Antonio. It offers a pro-business climate with robust tax incentives (sales tax exemptions on equipment and power for large data centers), no state income tax, and plentiful land. Critically, Texas has an abundance of energy – it leads the nation in wind power generation and has a vast grid of natural gas power plants, keeping electricity prices around 6–7¢/kWh for industrial users. That low cost, combined with available renewable energy (for sustainability goals), makes it very attractive for energy-intensive facilities. Connectivity is another strength: Dallas is a national interconnection hub and Houston connects to Latin America, giving Texas data centers broad network reach. The climate challenge (hot summers) is being met with innovation – for example, high-density computing in Houston is using Shell’s immersion cooling to handle heat efficiently. Texas data centers also engineer for severe weather resilience (hurricane-hardened designs in Houston, extra grid redundancies after the 2021 winter storm). One caveat has been grid reliability due to ERCOT’s isolated network, but the state and industry have taken measures to ensure critical facilities are better protected (backup generation, on-site energy storage, etc.). Outlook: With approximately 300 data centers already and more on the way, Texas is poised to keep growing. Dallas/Fort Worth will likely remain the focal point (thanks to connectivity and large workforce), but we also anticipate expansion in secondary Texas markets where power and land are even more accessible (the “Texas Triangle” cities, and perhaps West Texas for renewables-powered campuses).

• Arizona – Phoenix’s Meteoric Rise: Arizona has come out of Silicon Valley’s shadow to become a leading data center market in its own right. Phoenix offers an appealing combination of significant tax breaks (full sales and use tax exemptions for qualifying investments), relatively low-cost power around 7–8¢/kWh, and proximity to California’s internet backbone without California’s costs. The result: Phoenix’s data center capacity is projected to grow over 550%, reaching ~5.3 GW, making it the second-largest market by planned capacity. Major cloud providers and colocation firms have flocked to Arizona due to the ease of doing business – the state actively courts data centers via the Arizona Commerce Authority and by ensuring quick permitting. The dry desert climate means almost no risk of natural disasters (no hurricanes, very low seismic risk, minimal flood risk), which is a plus for uptime. Cooling is the main environmental challenge (120°F days), but many Phoenix data centers use advanced air cooling at night and chilled water storage to mitigate daytime peaks; others are exploring liquid cooling for high-density racks. On the connectivity front, Phoenix sits on key long-haul routes: it has direct fiber links to Los Angeles (making it a de facto extension of the Southern California network) and to major hubs eastward. As noted, Phoenix has even surpassed Northern California in data center expansion, indicating that many companies prefer to host in Arizona and connect back to Silicon Valley as needed, rather than navigate California’s higher taxes and energy costs. Outlook: Arizona’s momentum is strong – expect continued growth in greater Phoenix, potentially spreading to surrounding cities (like Tucson or other counties) if Phoenix proper starts to see power constraints. The state’s extension of incentives to 2033 ensures a stable, enticing environment for the next wave of builds.

• Georgia – Southeast’s High-Tech Hub: Georgia, with Atlanta as its anchor, has become the primary data center hub of the U.S. Southeast. Companies are drawn by affordable electricity (~7¢), a skilled workforce pipeline from Atlanta’s tech scene, and improving incentives. Georgia offers tax exemptions on electricity and equipment for data centers meeting investment/job criteria (similar to South Carolina’s program), and general business incentives like jobs tax credits can further sweeten deals. Atlanta’s role as a network hub (hosting major fiber routes and Internet exchanges) makes Georgia ideal for serving Southern regional demand. Recent headline projects include multiple Microsoft data centers totaling 324 MW in the Atlanta area, as well as Google and Facebook expansions. These investments underscore Georgia’s attractiveness. The Atlanta area provides a mix of suburban sites (with plenty of land in counties like Douglas, Fayette, and Newton) and urban retrofit opportunities (some smaller data centers are in downtown Atlanta leveraging existing telecom infrastructure). Georgia’s climate is warm and humid, which means data centers rely on mechanical chilling quite a bit, but water for cooling is available and not as scarce as in the West. The state also has nuclear power contributing to grid stability and carbon-free energy. Outlook: Georgia should continue to be a growth market, possibly moving up the ranks as more companies seeking East Coast coverage look beyond Virginia. Its challenge will be maintaining power capacity and transmission as the load grows – something Georgia Power is already planning for with new plants and grid upgrades specifically with large tech loads in mind.

• Oregon (and the Pacific Northwest) – Power Rich and Tax Friendly: Oregon has quietly become a data center haven due to two big advantages: cheap renewable power and zero sales tax. The state’s no sales tax policy means any equipment or construction materials purchased for a data center immediately cost ~5–10% less compared to states with sales tax – a built-in incentive. On top of that, Oregon’s Enterprise Zones in places like Hillsboro (near Portland) and Prineville (in central Oregon) offer lengthy property tax abatements for large investments. Companies like Google, Facebook (Meta), Amazon, and Apple have all built sizable facilities in Oregon to take advantage of these benefits. The power situation is excellent: Oregon enjoys electricity rates around 7–8¢/kWh and that power is largely from hydroelectric dams and wind – meaning it’s both low-cost and mostly renewable. The climate in much of Oregon is cool enough to allow extensive free cooling (Prineville’s data centers famously use cool high-desert air at night and during shoulder seasons to chill their servers, with Facebook achieving PUE near 1.10 in some cases). Connectivity in Oregon has historically been a challenge outside of Portland, but the state has made strides: Hillsboro is now an international cable hub (attracting Asia-Pacific subsea cables), and long-haul fiber has been extended to central and eastern Oregon sites to link them directly to West Coast exchange points. While Washington State also shares these characteristics (and Quincy, WA had a big boom of data centers last decade), Oregon’s tax advantages give it an edge over Washington, which does levy sales tax except in certain rural county projects. Outlook: Oregon will likely maintain a steady growth path, especially for hyperscale cloud companies continuing to expand their existing campuses. One potential headwind is local pushback on tax breaks – some communities have questioned whether 15-year property tax exemptions truly pay off. But so far, Oregon shows no signs of pulling back the welcome mat for data centers, as they’ve revitalized several small towns (e.g., Prineville’s transformation by Facebook and Apple’s presence).

• Others (Utah, North Carolina, Nevada, Iowa): There are a few other states that deserve mention for their attractive profiles. Utah has become a popular western U.S. location – it offers a very friendly business environment, inexpensive land, and while it lacks a specific data center tax statute, it uses general incentives effectively (grants, utility discounts). Utah’s tax structure is favorable and the tech talent in the Salt Lake City area is growing. Salt Lake City’s data center capacity is set to grow ~699% in coming years, fueled by big projects from Facebook and others who cited Utah’s “attractive tax incentives” and affordable real estate. North Carolina was one of the pioneers in large-scale data center incentives back in 2010 (landing Apple’s data center with bespoke incentives) and continues to attract large facilities, especially in its less populated counties. Its policy of exempting electricity from sales tax for qualifying data centers is a unique advantage that significantly lowers operating cost. Power in NC is reasonably cheap (~7.6¢) and Duke Energy has been willing to provide renewable energy programs for data center clients. Nevada is an up-and-comer thanks to extremely low power costs in the Las Vegas area and a strategic location between California and the Mountain West. It has already seen huge growth (Switch’s SuperNAP campus, Google’s $400M facility, Apple’s Reno data center) and with the projected 1000% capacity increase around Vegas/Reno, Nevada is on everyone’s radar. The state’s tax abatement program and lack of corporate income tax make it financially appealing, and Las Vegas’s fiber connectivity to Los Angeles and Phoenix is improving rapidly. Lastly, Iowa merits repeat mention as a heartland powerhouse for data centers: it not only offers rock-bottom electric rates (~6¢) and big tax incentives, but also has a geographic advantage of being centrally located to serve all North America with somewhat equal latency. Companies like Meta, Google, and Microsoft have massive facilities there, and the trend continues (Meta is expanding its Altoona, Iowa campus to an eye-popping 5+ million square feet). Iowa shows that with the right mix of incentives and infrastructure, even a state with a smaller metro footprint can attract the world’s tech giants.

  
  

Conclusion: Strategic Decisions in a Rapidly Evolving Landscape

The data center industry in the U.S. is in the midst of explosive growth, and site selection is more critical than ever. The “best” state for a new data center depends on a company’s priorities – whether it’s minimizing cost, maximizing performance, ensuring sustainability, or balancing all of the above. As we’ve detailed, tax incentives can heavily reduce capital and operating expenses, power rates and reliability dictate the long-term economics, fiber connectivity drives performance and user experience, and architectural considerations ensure a facility can be built and operated optimally in a given locale.

To summarize a few key takeaways for investors and developers:

• Competitive Incentives in the USA: A large majority of states now offer data center tax incentives, but the generosity and conditions vary. States like Virginia, Arizona, Texas, Iowa, and North Carolina stand out for robust, well-established incentive programs – often tipping the scales when comparing similar sites across state lines. It’s essential to account for not just the face value of tax breaks, but also compliance requirements (jobs, investment timeline, etc.) and longevity (e.g., 10-year vs. 30-year abatements).

• Power Costs and Capacity are King: Electricity pricing can swing a project’s viability. States with sub-7¢/kWh power (many in the Midwest, South, and Pacific Northwest) offer a clear advantage on operating cost. However, one must also vet the grid’s capacity and the energy mix. Some traditionally top states (e.g. Virginia) face new power capacity challenges, while others (North Dakota, Nebraska) have energy to spare and could become surprise winners for power-hungry AI data centers. Renewable energy availability is increasingly a deciding factor as well, tied to corporate ESG commitments.

• Location for Low Latency: If milliseconds matter, proximity to major internet exchanges and population centers is non-negotiable. States housing the big network hubs (Virginia for MAE-East, Texas for central routes, Georgia for Southeast, Illinois for Chicago, California for West Coast) will continue to be in high demand. That said, the rise of edge computing is spreading smaller data centers to more states – so opportunities exist in secondary markets that can serve regional needs. Ultimately, many large deployments follow a hub-and-spoke: core in the hub states, smaller nodes in others.

• Design and Site Fit: The best state must also align with the project’s design philosophy. A state with cheap land and easy permitting (e.g. Idaho or Alabama) might allow a fast, large-footprint build, whereas a state with a dense tech ecosystem (e.g. Massachusetts) might mean higher costs but access to talent and innovation. Climate factors influence cooling choices – a free-cooling friendly state can save energy, a hot state might prompt investment in cutting-edge cooling tech. Community relations are an emerging aspect – states and counties that plan for data center growth (zoning, noise ordinances, infrastructure planning) will provide smoother experiences than those caught off guard by sudden development.

Looking ahead, the U.S. data center landscape in 2025 and beyond will be shaped by trends like AI workloads (which might favor locations that can power and cool extremely high-density servers), sustainability pressures (potentially steering more projects to renewable-rich states or those with carbon mandates), and geopolitical/enterprise considerations (such as requiring redundancy in multiple regions for disaster recovery or data sovereignty). States that remain adaptable and continue to invest in their power grid, fiber networks, and business-friendly policies are likely to attract the lion’s share of new developments.

In conclusion, there is no one-size-fits-all “best” state for every scenario, but as of 2025 states like Virginia, Texas, Arizona, Georgia, Oregon, and others highlighted above have proven especially attractive for data center investment – combining favorable economics with the necessary infrastructure. By carefully weighing tax incentives, power costs, fiber latency (as if consulting a data center tax incentives USA list, checking data center power rates 2025 stats, or reviewing a fiber latency map US), companies can make informed decisions that align with their technical and financial goals. The continued growth and competition between states ultimately bodes well for the industry, fostering more options and innovation in how and where the digital backbone of our economy is built.

Sources

This report draws on a range of authoritative sources, including:

• industry analyses (NAIOP, JLL/Upwind),

• energy data (U.S.), state economic development agencies,

• news from data center trade publications (DataCenterDynamics, etc.) that track the latest incentives and projects.

These provide the factual backbone for comparing states on the metrics of taxes, power, connectivity, and design considerations.

U.S. data center with 2025-ready infrastructure and connectivity.