Illinois Gov. J.B. Pritzker suspended a sales tax exemption for data center equipment through a press release in June, circumventing the state legislature after lawmakers rejected the same proposal during budget negotiations, according to a new report from the Illinois Policy Institute published this week. The governor directed the Department of Commerce and Economic Opportunity to stop processing exemption agreements starting July 1, effectively imposing sales tax on equipment purchases for new data center projects. The report concludes that this action is both economically damaging and legally questionable, since it suspends a statutory requirement without legislative approval or formal rulemaking.
State law requires that the Department of Commerce and Economic Opportunity "shall issue certificates of exemption" to data centers meeting objective criteria, including at least $250 million in capital investment, project labor agreements, and green building standards, the report explains. Illinois courts have previously ruled that "shall" language means agencies lack discretion to deny applications from businesses that satisfy statutory conditions. The governor proposed pausing the exemption in his budget, but House Speaker Chris Welch told Capitol News Illinois the idea "wasn't even close" to having enough support in the Democratic caucus. After the legislative session ended, Pritzker announced the pause unilaterally—not through an executive order or regulation, but simply through a press release. Eleven days after announcing the moratorium, he signed legislation that set a July 1, 2029 sunset for the exemption, explicitly reinforcing the "shall issue" requirement for at least three more years.
The report notes that sales tax exemptions for manufacturing equipment, agricultural machinery, energy generation equipment, and mining tools have existed for decades without controversy, since sales tax is designed to apply only to final consumer purchases rather than intermediate business inputs. According to the authors, taxing equipment used in production can lead to "tax pyramiding," where the same good is taxed multiple times before reaching consumers, potentially raising prices throughout the economy. About two decades ago, states began extending these ordinary exemptions to data centers as cloud-based processing replaced self-hosted systems, though most structured them as "incentives" to claim credit for attracting investment. Pritzker himself acknowledged that his action "means for a lot of them, that they've got to either slow down or stop," and he's now pushing for the legislature to pass his POWER Act, which would grant new regulatory authority over data centers.
The report argues that singling out data center equipment for sales tax while exempting machinery in other industries amounts to discriminatory treatment that makes Illinois a riskier place to invest. Because data centers require massive capital outlays and must regularly replace servers, imposing sales tax on their equipment can render operations unprofitable in the state. The authors contend that Illinois has "no good answer" for how a press release can suspend state law and department regulations that went through formal rulemaking, particularly when Illinois courts have "looked unkindly on policymaking outside these channels." While Arizona enacted a three-year data center exemption moratorium through its legislature and governors in Ohio and Nebraska issued pauses under arguably existing executive authority, Illinois law provides no such discretion. The report warns that overriding statutory requirements by gubernatorial announcement sends a message to every company considering investment in Illinois that they risk discriminatory treatment by executive decree at any time.