It’s hard to read any news—whether local, state, or national—these days and not see a story about hyperscale data centers. No matter your position, it’s obvious that communities nationwide are grappling with how to handle the intense, accelerated interest in this industry and the technology it supports, like AI and cryptocurrency.
In Minnesota, communities and state agencies are trying to quickly get up to speed on all things hyperscale data center, while some developers and end-users are planning on starting construction as early as this summer. Many of these issues came to a head at the state Capitol in 2025, when legislators passed what has been hailed by some as a “nation-leading” law on data centers. In 2026, this narrative was used to suggest that the state is well-positioned to address the unprecedented growth of hyperscale data centers and that no further legislative action is needed. So, what does the law actually say? Let’s break it down.
Here’s what Minnesota’s 2025 data center law means for taxes, energy, and water.
Taxes
One of the biggest changes included in the 2025 data center law was the repeal of the existing sales tax exemption for electricity purchases.
- Ends sales tax exemption for electricity purchased by a data center.
- Extends the remaining sales tax exemption for “enterprise information technology” equipment and computer software from 2042 to as late as 2077.
- Enterprise information technology includes cooling systems and power infrastructure.
- Creates a new category of “qualified large-scale data centers” eligible for the existing sales tax exemption—facilities that are at least 25,000 square feet (in aggregate) and whose total cost to construct or refurbish is at least $250 million.
- Requires qualifying data centers to certify that laborers and mechanics constructing or refurbishing the data center be paid the prevailing wage. Importantly, this does not include anyone working at the data center once it is operational. And “refurbishing” does not include maintenance or equipment replacement.
- Requires qualifying data centers to certify that they meet at least one kind of sustainable design or green building standard within three years of the start of operations.
Energy
Establishes a new rate class for “very large customers” like data centers, identifies factors the Minnesota Public Utilities Commission (PUC) must consider when addressing a proposed Electric Service Agreement, and creates a new fee for data centers based on peak demand.
- Defines a data center as a facility designed to have a load of at least 100 megawatts (MW) and whose primary purpose is the storage, management, and processing of digital data.
- Directs the Minnesota Public Utilities Commission to establish a definition and characteristics of a “very large customer” class for each public utility—excluding municipal utilities (muni) or electric cooperatives (coop).
- Establishes the PUC’s authority to approve, modify, or reject a tariff or Electric Service Agreement (ESA) between a public utility—but not a muni or a coop—and a very large customer. In its review, the PUC must consider how the tariff or ESA can achieve four specific outcomes that are generally intended to place the burden of costs on the very large customer, not other existing ratepayers:
- All costs attributable to the very large customer are assigned to the very large customer class
- Electricity provided to the very large customer achieves the 100% carbon-free law benchmarks without causing the utility to delay or modify its compliance.
- Ensure other customers are not at risk of paying for stranded assets caused by the utility serving the very large customer
- Any other outcome the PUC deems important to ensure the tariff or ESA is in the public interest
- Directs the PUC to require public utilities to offer an optional clean energy and capacity tariff to commercial and industrial users like data centers. Again, this does not apply to municipal utilities or electric cooperatives. On its own, this does not guarantee that a data center will, in fact, use “new clean energy or capacity resources.” And the term “clean energy” is not defined, leaving the door open for “renewable” natural gas, biomass, dirty hydrogen, or even natural gas fitted with carbon capture.
- Allows some utilities to exclude data centers from their calculations for statewide solar energy and energy conservation requirements. In return, data centers must pay an annual fee based on their peak demand:
| Peak Demand | Fee |
| (1) 100 to 250 MW | $2,000,000 |
| (2) above 250 MW but below 500 MW | $3,000,000 |
| (3) 500 MW but below 750 MW | $4,000,000 |
| (4) 750 MW or greater | $5,000,000 |
The money collected must only go to low-income energy conservation and weatherization programs.
Water
The 2025 law included no new enforceable standards or reporting requirements.
- Establishes an optional preapplication evaluation for certain water appropriation projects with a proposed consumptive water use over 100 million gallons annually. Any information obtained by the Department of Natural Resources (DNR) during this preapplication evaluation is considered nonpublic, meaning it cannot be obtained even through a Data Practices Act request.
- If a new or amended permit is issued by the DNR for a qualified large-scale data center, the DNR “shall ensure”:
- Public health, safety, and welfare are adequately protected
- Water conservation and efficiency measures are “reasonably considered”
- Water use conflicts are addressed as already required by Minnesota regulations
- An aquifer test—if the Commissioner of DNR believes it is necessary
This language does not add any new permit requirements or enforceable conditions for data centers, and much of what is listed above is already required under existing laws and regulations.
Another common refrain is that these water provisions somehow create a new reporting requirement for data centers. It does not. The existing water appropriation permit structure may require annual reports on water use by permit holders. These are not unique to data centers, and the 2025 law does not make this requirement more stringent.
To be sure, the 2025 law is an important first step and sets a minimum standard when it comes to regulating data centers and energy. But it should not be seen as the pinnacle of data center legislation, because it simply isn’t.
By Sarah Mooradian, Government Relations & Policy Director, CURE
Photo Credit: Mitchell Hancock, Research & Digital Media Strategist, CURE
