A bill to exempt data center equipment and software from South Dakota sales and use taxes failed in the House State Affairs Committee on Wednesday after nearly two hours of testimony that split lawmakers, industry representatives, and local officials over whether the state should offer tax incentives for large-scale data center projects.
House Bill 1005, sponsored by Rep. Kent Roe, R-Hayti, failed on a 9-3 vote. The committee sent the measure to the 41st day, killing it for the 2026 session.
Supporters told lawmakers South Dakota needs a tax policy comparable to other states to attract investment. Opponents raised concerns about whether local services and infrastructure can keep up with the scale of development and whether the state should forgo sales tax collections for projects that may not deliver proportional local benefits.
Roe said that utilities, landowners, and state agencies had provided input to revise the bill over several months. He argued South Dakota’s current tax treatment puts the state at a disadvantage.
“More than 40 states, every neighboring state, already have more competitive policies,” Roe said at 5:36. “We tax this technology higher than most.”
What the bill would have done
House Bill 1005 would have created a sales and use tax exemption for enterprise information technology equipment and computer software used in a qualified data center. The exemption would have applied for 50 years after a qualifying date tied to the issuance of an initial building permit.
The bill addressed electric service agreements to prevent cost shifts and included notice rules for local water providers.
Industry: Revenue comes through other taxes
The bill addressed electric service agreements to prevent cost burdens on other customers and included notice rules for local water suppliers.
Tax revenue from a data center could exceed $333 million in 10 years, supporters claimed, with property and electricity sales taxes being the primary sources, as these were not waived by House Bill 1005.
Rural officials: Tax base pressure and services demands
Deuel County Commissioner Jay Grabow told lawmakers rural counties face shrinking tax bases and difficult choices as costs rise.
“What do we do?” Grabow said. “We increase taxes, or we reduce services, or we increase our assets in the county to spread those tax requirements over.”
Firefighter: Volunteer departments aren’t prepared
Erik Oftedal testified that volunteer fire departments, including his own in Toronto, are ill-equipped for emergencies at large facilities.
“The training and equipment to deal with a building of that size and complexity is something we are not prepared for,” Oftedal said.
Infrastructure timelines raised
Sara Steever, a recently retired chief technology officer, told lawmakers that data center development can be constrained by infrastructure timelines.
“In Loudoun County, Virginia, the wait for new data centers that are not in line already is about seven years for connection,” Steever said. “These companies don’t need tax breaks. They need connectivity, which we already have.”
Lawmakers split on competitiveness and risk
Rep. Greg Jamison, R-Sioux Falls, proposed an amendment to create a tiered exemption structure. The committee rejected the amendment before voting on the bill.
Supporters argued that without an exemption, South Dakota will not compete for projects.
Rep. Tim Reisch, R-Howard, framed the bill as an opportunity the state loses by default if projects do not locate here.
“100 percent of zero is zero,” Reisch said.
The committee voted to kill the measure. Supporters could still attempt to bring the bill to the House floor through a smokeout petition.
