Ohio tax review could raise costs for Amazon’s $40B data centers

Ohio paused sales-tax exemptions for data-center equipment while lawmakers review incentives that helped bring Amazon’s nearly $40 billion data-center investment to the state. Governor Mike DeWine halted new exemption requests in May after state officials reported the sales-tax break cost Ohio more than $1.5 billion in 2025, compared with an earlier estimate of about $136 million.

Some legislators have proposed repealing the exemption. Bipartisan plans would require data centers to pay a larger share of grid-upgrade costs tied to their electricity demand. More than 10 states are re-evaluating similar incentives because of concerns about electricity and water use and the strain on local infrastructure.

Amazon has invested nearly $40 billion in Ohio data centers since 2015 and paid roughly $11 million in property taxes and fees in the state last year. Company materials show investments in servers and networking can pay back in under three years and that data centers can operate for more than three decades, with tax relief, power infrastructure and construction costs factored into those return calculations.

The timing matters for capital planning. Amazon expects about $220 billion in cash capital expenditure in 2026 as AWS adds capacity for cloud and AI services. AWS reported second-quarter revenue rose 37% to $42.2 billion and said its AI business exceeded a $25 billion annual revenue run rate while growing at triple-digit rates.

Amazon raised £4.25 billion, about $5.76 billion, in its first sterling bond sale this week. Large cloud providers have issued more than $200 billion of debt so far this year to finance expansion. Analysts say Ohio’s review is unlikely to threaten Amazon’s overall balance sheet but will change the economics of building new capacity.

Morgan Stanley analyst Ariana Salvatore noted on the firm’s podcast that “the biggest debate far and away is on data center pushback,” and identified Ohio among states where development could become more conditional. Mawer Investment Management analyst Irena Petkovic warned that large-scale AI adoption does not guarantee investor returns, saying, “You can be right, but still be wrong.”

D.A. Davidson analyst Gil Luria characterized forecasts that AWS could reach $1 trillion in annual revenue as “bold speculation” and described projecting current growth rates far into the future as “more than ambitious.” He has cautioned investors against assuming today’s expansion rates will continue indefinitely.

Policy changes that add taxes, grid contributions or higher financing costs increase the return hurdle for each new data-center project. Ohio’s review does not stop construction or change operations at existing facilities, but it introduces regulatory uncertainty at the margin as AWS scales capacity.

The debate in Ohio highlights the trade-off states face when offering incentives to attract data-center investment while addressing local costs tied to energy and water infrastructure. For cloud providers, the balance of tax relief, infrastructure upgrades and construction costs influences where and how quickly they build physical capacity for cloud and AI services.