Kentucky officials and Louisville weigh data center tax benefits and regulations

Local governments and school districts in Kentucky are evaluating the potential for significant tax windfalls from proposed hyperscale data centers. In Mercer County, officials suggest a facility could generate hundreds of millions of dollars in local taxes over 15 years, while Hancock County anticipates over $22 million in revenue during the first year of operation.

However, the Kentucky Center for Economic Policy has raised concerns regarding potential tax loopholes. The think tank warns that developers might successfully argue that data center operations qualify as “manufacturing” or “industrial processing” under state law, which could allow them to exploit existing tax breaks and reduce the expected local revenue.

In Louisville, the Planning Commission has recommended stricter regulations for data centers than originally proposed by the mayor’s administration. Following public pushback against massive facilities fueling the artificial intelligence industry, the commission voted 5-3 to recommend rules that include a ban on new data centers larger than 500,000 square feet. The proposed regulations also suggest requiring closed-loop cooling systems to reduce water usage and mandating rezoning processes to allow for public comment and Metro Council approval.