By Tim Carpenter, Kansas Reflector
TOPEKA — The Kansas Legislature completed a fitful process of writing and rewriting a bill delivering a state tax subsidy to investors betting on construction of enormous data centers costing a minimum $250 million.
The House and Senate voted with bipartisan majorities on the final day of the 2025 session to send Gov. Laura Kelly a bill containing the sales tax incentive to help attract warehouse-shaped hubs packed with computer servers relied upon in the digital economy. The governor has 10 days to act on Senate Bill 98 once it lands on her desk.
Negotiators tossed an earlier Senate-passed version of the bill in a dumpster before approving an alternative limiting the length and scope of the sales tax break, setting boundaries on how huge quantities of electricity could be sourced and encouraging owners of data centers to conserve water used to cool the systems.
Modifications to the bill reflected anxiety about data centers hogging the electric grid or sucking up scarce water resources and leaving residential customers to pay the cost of replenishing those necessities.
“This bill affects everybody and we want to make sure we do the right thing,” said Rep. Leo Delperdang, a Wichita Republican who urged the House to approve the package.
He said a key piece of the puzzle was a prohibition in the bill forbidding owners of data centers to construct their own electric power plants. In addition, he said, the bill blocked data centers from taking advantage of a state law allowing big economic development projects to receive from a local utility company a 40% electricity rate reduction for five years and a subsequent 20% rate discount for the next five years.
On Friday, the House vote was 85-37. The Senate approved the bill 26-9 without substantive debate.
“Not only will it affect everybody, it’s going to affect the next generation and the next generation,” said Rep. Henry Helgerson, a Democrat from Eastborough who voted “no” while expressing concern about future water shortages. “I hate to be the spoiler in all this. There is no requirement of whether they’re going to save any water. People are being told right now not to plant trees, not to put bushes in.”
Helgerson also said it wasn’t appropriate for legislative leadership to force votes on the final day of the legislative session on a 100-page bill subjected to months of behind-the-scene wrangling.
The urgency made sense only in the context of pleasing those who would financially benefit the most from construction of facilities capable of centralizing storage, management and dissemination of data, he said.
“Who’s pushing all this? My guess it’s the investment bankers outside this state. They have billions of dollars they want to bring in,” he said.
Under the overhauled SB 98 — formerly the data center reforms were in Senate Bill 51 — the state would authorize a 20-year sales tax exemption for companies investing in data centers costing at least $250 million. The exemption would cover purchases for development, acquisition and operation of a data center, including land and site improvements, buildings and data center equipment; labor services to install and maintain data center equipment; purchases by a contractor to build or modify a data center; and backup generators. It would exclude electric generation equipment.
The bill would define equipment in a data center to include servers, routers and connections and security systems; hardware to operate and equip a data center, including cooling and water management systems; computer networking equipment, including racks and cabling; and conduit and cabling to link one or more data centers substations.
The Kansas Fusion Center Oversight Board would be authorized to deny projects deemed a threat to state infrastructure, but the Kansas Department of Commerce would otherwise handle certification of applicants for the tax break. A qualified business would have to begin construction within 10 years of being approved by the state and must make the aggregate investment of $250 million within five years of starting operations.
In addition to construction jobs, the data center would be required to create and maintain at least 20 new jobs within two years of launching operations.
A telecommunications, wireless and video service provider wouldn’t be eligible to become a qualified firm to receive a state sales tax exemption for data centers. Countries of concern, including China, would be excluded from providing equipment to Kansas data centers that drew upon the sales tax break.
The data center would for 10 years be required to purchase electricity from the public utility providing the area’s retail electric service. If the Department of Commerce concluded a data center was in breach of the agreement, the firm would have 120 days to address the problem. If not, the agency could require the firm to repay all or part of the sales tax exemption and wholly or partially terminate the exemption.
Sen. Stephen Owens, a Hesston Republican who led Senate negotiations on the bill, said adjustments to the original bill demanded by the House improved the legislation.
“It is substantially different with additional guardrails than what passed the Senate,” Owens said. “I believe that actually makes this a better bill.”
The original data center bill, know as SB 51, was introduced in January by a representative of NetChoice, a trade association representing online businesses such as Meta, Apple, Amazon, Google and X. NetChoice has been involved in legal challenges to state regulations the organization believed infringed on free speech or free enterprise.
An early version of the bill was more generous in terms of delivering a sales tax exemption for 15 years on investments of $250 million, 30 years for investments of $500 million and 60 years on investments of $1 billion.
The economic development incentive for data centers was opposed by Americans for Prosperity of Kansas and the Kansas Sierra Club.
During a Senate committee hearing, the bill was endorsed by NetChoice, Geiger Ready-Mix, Evergy, Kansas Power Alliance, De Soto Chamber of Commerce, Diode Ventures, Kansas Electric Cooperatives, KC Tech Council and Wyandotte Economic Development Council.
“Data centers are the infrastructure for state-of-the-art search engines, cloud computing, web-based services and artificial intelligence,” said Brad Smoot, who lobbied for the tax break on behalf of NetChoice. “Hyperscale data centers are not being built in states that impose a sales tax on their construction, equipment, repair and operation. If Kansas wants to benefit from the billions in private dollars that go into data center construction and operations, it will need to create a tax structure that is competitive.”
A company called Red Wolf recently filed plans in Wyandotte County to build a 400-acre data center west of Kansas Speedway. The Unified Government of Wyandotte County and Kansas City said the project could total 1.8 million square feet of building space. One estimate indicated the total project investment could reach $12 billion.
Greg Kindle, president of the Wyandotte Economic Development Council, said the county had actively sought to attract data center development projects that would benefit from a state sales tax exemption.
“We have pursued data centers over the years, but were unsuccessful in large part due to sales taxes on the ongoing investments made by these facilities,” he said. “Kansas’ central and safe U.S. location is beneficial to attracting mega-investments of this scale.”
Correction: This story misspelled the name of Brad Smoot.
Last updated 11:48 p.m., Apr. 15, 2025
