South Carolina’s aggressive courtship of data center operators is delivering generous tax breaks to some of the world’s largest technology companies while many local retailers and service businesses continue to operate under the standard tax rules. A layered system of state sales tax exemptions, county-level property tax deals, and a recent legislative pause on certain new local incentives has helped create a two-tier incentive landscape that tilts public policy toward massive server farms. As demand for data processing surges alongside artificial intelligence growth, the gap between what tech giants pay and what small businesses owe is drawing sharper scrutiny across the state.
How State Law Carves Out Tax Relief for Data Centers
The foundation of South Carolina’s data center incentive structure sits in the state tax code itself. Section 12-36-2120(79) of the South Carolina Code of Laws exempts qualifying computer equipment and electricity used by a data center from sales and use taxes. For a facility spending millions annually on power and hardware, that exemption translates into significant savings that no neighborhood restaurant, machine shop, or retail store can access. The statute does enumerate certain non-qualifying uses, but the core benefit still flows almost exclusively to large-scale computing operations that meet the threshold requirements.
This is not a minor line item. Electricity is typically one of the largest operating expenses for a data center, and computer equipment refreshes happen on regular cycles. By removing sales tax from both categories, the state effectively subsidizes two of the biggest cost drivers of the data center business model. A local dry cleaner or auto repair shop, by contrast, pays full sales tax on most equipment purchases and on its taxable utility consumption. That structural difference compounds over years, widening the cost gap between data center operators and the small businesses that form the backbone of most South Carolina communities and that do not qualify for such narrowly tailored exemptions.
County Property Tax Deals Add Another Layer
Beyond the state-level sales tax exemption, counties offer their own sweeteners through Fee in Lieu of Taxes agreements, known as FILOT. According to the Department of Revenue guidance, FILOT arrangements allow counties to negotiate assessment ratios lower than standard property tax treatment and to lock in those reduced rates for extended periods. These agreements can also incorporate special millage rates and long-term schedules, which together let counties trade immediate tax collections for pledged capital investment. For a data center investing hundreds of millions of dollars in a single campus, a lower assessment ratio over a long timeline means the facility pays a fraction of what its property would otherwise generate in local tax revenue.
The practical effect on county budgets is hard to ignore. When a large employer negotiates a FILOT agreement, the county accepts reduced near-term tax revenue in exchange for the promise of jobs and economic activity. But data centers are often described by economic development critics as lean employers relative to their physical footprint and capital investment, with a modest permanent workforce once construction ends. Local governments can then face a squeeze: the data center occupies land, draws water, and uses roads, while the property tax it generates under a FILOT deal may be lower than it would be under standard property tax treatment. Meanwhile, existing businesses that did not negotiate special deals continue paying standard property tax rates, effectively shouldering a larger share of the local tax base and subsidizing the incentives given to capital-intensive but low-employment projects.
Bill 4087 and the Moratorium on New Incentives
The 2023–2024 legislative session produced Bill 4087, which, as written in the bill text, addressed data-center-related tax provisions and set a temporary prohibition on certain new economic incentives by political subdivisions aimed at attracting data center projects. That moratorium, while framed as a cooling-off measure, has a counterintuitive effect. It freezes the competitive bidding process among counties eager to land projects, but it does nothing to unwind the deals already in place. Companies that secured incentive packages before the prohibition took effect continue to benefit, while any new entrant or expanding local business that might have sought similar treatment is locked out during the moratorium period…