On July 7, 2026, North Carolina Governor Josh Stein signed SB 257, the Current Operations Appropriations Act of 2026, which repeals the sales tax exemption for electricity used at qualifying data centers and eligible internet data centers. On the same day, the governor signed HB 56, which clarifies the effective date of the repeal to the first billing period at least 30 days after enactment. HB 56 also adds a quarterly reporting requirement (new G.S. 105-251.2(c1)) and amends the city distribution formula (G.S. 105-164.44K).

Following the repeal of the exemption, the Department of Revenue issued guidance implementing this legislation.

Repeal of electricity exemption

Before this legislative change, North Carolina allowed broad sales and use tax exemptions for certain qualifying data center operations, including exemptions for support equipment, computer equipment, software, electricity and certain other eligible purchases. The new law narrows these incentives by eliminating the sales tax exemption for electricity purchased for use at qualifying data centers and eligible internet data centers. Electricity will now be subject to sales tax at a rate of 7.0%, regardless of the locality in which it is consumed.

The repeal does not affect other data-center-related sales and use tax exemptions that remain available under North Carolina law for qualifying purchases of data center equipment and infrastructure.

Effective date of the repeal

Under SB 257, the repeal took effect when the bill became law on July 7, 2026, and applied to electricity sold on or after that date. HB 56 changes the effective date so that the repeal applies beginning with the first electricity billing period that begins at least 30 days after enactment — i.e., billing periods that start on or after August 6, 2026.

Department of Revenue guidance and reporting requirements

On July 23, 2026, the Department of Revenue (Department) issued an Important Notice¹ addressing implementation of the repealed exemption. The notice discusses:

• Application of the revised law to certified datacenters
• Transition rules for utility billing periods
• New reporting requirements
• Definitions applicable to qualifying and eligible internet data centers

The notice also clarifies the treatment of electricity purchased after the effective date, includes examples for utility billing periods that span the effective date and outlines administrative procedures for affected taxpayers.

The law requires a person purchasing electricity for use at a certified data center to submit to the Department an informational return or report on the amount of tax they paid on their purchase of this electricity. The return/report is due within 30 days of the end of each quarter, with the first return/report due by October 30, 2026. The Department said that it will issue additional guidance for filing the return/report before this deadline.

Implications

North Carolina's repeal of the data center and internet data center electricity sales tax exemption represents a significant policy shift for an industry that has historically benefited from one of the nation's more favorable data center sales and use tax incentive structures. While the legislation preserves exemptions for qualifying data center equipment and capital investments, it increases the ongoing operating costs associated with electricity consumption, which is often a significant expense for large-scale data center facilities.

Owners and operators of qualifying data centers and eligible internet data centers should consider reviewing utility billing arrangements, sales tax accrual processes, budgeting assumptions and exemption certificate procedures for compliance with the new law. Taxpayers should also consider evaluating the impact of the repeal on future expansion projects, long-term operating costs and existing incentive agreements.