If a State Adopts a Tax Exemption, They Will Come: Field of Dreams for Data Centers
It is no secret that the use of artificial intelligence (AI) is growing rapidly, with many companies developing AI tools, such as improvements to searches in web browsers and tools like ChatGPT which can be used to draft documents, ask questions or turn your family pictures into cartoons. The massive growth in AI usage has sharply increased the need for data centers that house the infrastructure necessary to operate AI tools. Recently, local governments in Michigan have found themselves on the frontlines of this “AI Revolution,” as technology companies have unveiled plans to build massive data centers in the Great Lakes State.
Why the sudden interest in Michigan? Although there are currently data centers located in Michigan, requests to build “hyperscale” data centers that can span hundreds of acres is relatively recent, as locating data centers in Michigan became much more attractive after Michigan adopted tax exemptions for data centers. The tax exemptions, which are Public Act 181 of 2024 (“Act 181”) and Public Act 207 of 2024 (“Act 207”), became effective on April 2, 2025 and April 17, 2025, respectively. Act 181 amended the Michigan Use Tax Act, and Act 207 amended the Michigan General Sales Tax Act to provide exemptions from Michigan’s 6% sales and use tax for “enterprise data centers” that meet certain requirements related to capital investment and the creation of new jobs. These exemptions are in effect until December 31, 2050, and the exemptions are extended for data centers that are included in brownfield plans until December 31, 2065. As a result, Michigan has become more attractive for developers looking to build data centers.
While it was the State’s incentives that brought the new data centers to Michigan, it is local governments that must plan and decide how to deal with them. Michigan already has data centers, but none of them are as large, nor in need of as much water and electricity, as those recently proposed. Due to how new these “hyperscale” data centers are, most local governments likely do not have specific requirements for data centers, leaving them vulnerable to being caught off guard if a data center project is suddenly brought to their meeting hall.
Without specific zoning requirements, local governments are already grappling with how to respond to these projects. Currently, the largest proposed data center would sit on a 250-acre property located in Saline Township near Ann Arbor. Backed by both Oracle and OpenAI, this data center would cost over $7 billion to build, representing the largest economic project in Michigan’s history. Initially, the Saline Township Board rejected the developer’s rezoning request, citing potential losses of water, agricultural land, and the area’s rural character. In response, the developer filed a lawsuit, and argued that Saline Township’s decision amounted to exclusionary zoning in violation of state law. It also launched a public relations campaign that highlighted the tax revenues the Township would receive if the project was built. Faced with this pressure, Saline Township settled the dispute with the developer, opting to approve the project in exchange for a $4 million township farmland preservation trust fund; a $2 million community investment fund; and $8 million for area fire services, protections for area water resources, and a decommissioning fund for the facility. Construction on this new facility is expected to break ground sometime in 2026.
Your local government may wish to consider adopting standards for data centers in anticipation of potential requests, to ensure that regulations are in place when an application is submitted, which is the route the City of Mason has taken. Other local governments have decided to adopt temporary moratoriums on consideration of data center proposals to develop zoning regulations, such as Howell Township and Pittsfield Township. A temporary moratorium can be a valuable tool to allow your local government time to thoughtfully develop zoning regulations for these new uses.
If you have any questions regarding regulation of data centers or proposed data center developments, please contact a member of our Municipal Practice Group.
