Kansas SB 98 – Summary and Deep Dive (Enacted 2025, effective July 1, 2025)

Quick Summary

SB 98 created the Kansas Data Center Sales Tax Exemption Program. It offers a 20-year 100% state and local sales and use tax exemption on construction, equipment, and related costs for large-scale data centers that invest at least $250 million and create at least 20 new full-time Kansas-resident jobs.

Key strings attached:

• Must buy power from the local utility for 10 years.
• Must have a water conservation plan.
• Must pass a cybersecurity/critical-infrastructure review by the Kansas Intelligence Fusion Center (KIFC).
• Explicitly banned from receiving the normal economic-development discounted electricity rates that other large industrial customers can get.

It is the state’s main tool to attract hyperscale and large data centers while trying to protect ratepayers and national security interests.

---

Deep Dive

1. Legislative Purpose and Background

SB 98 (Chapter 124 of the 2025 Session Laws) was designed to make Kansas competitive in the national race for AI and cloud data center investment.

It does three main things:

1. Creates a long-duration sales tax exemption for qualified data centers.
2. Prohibits public utilities from giving data centers the standard 40%/20% economic-development electricity rate discounts.
3. Requires a mandatory national-security-style review before any public incentive can be awarded.

The bill amends K.S.A. 79-3606 (sales tax exemptions) by adding new subsection (xxxx) and amends K.S.A. 66-101j (electric utility economic development rates) to carve data centers out of the discount program.

2. Key Definitions (from the statute)

• Qualified Data Center: One or more buildings (or leased space) in Kansas that house networked computer servers for storage, management, and dissemination of data. Buildings must be connected by fiber for redundancy and resiliency.
• Qualified Firm: A business (or affiliate) registered with the Kansas Secretary of State that is engaged in developing, operating, or leasing a qualified data center. Excludes traditional telecom, wireless, and video service providers.
• Eligible Data Center Costs: Land, buildings, site improvements, data center equipment, software, engineering/design, permitting, site characterization, lease payments, and other direct costs. Electricity costs are excluded.
• Data Center Equipment: Servers, routers, cooling systems (chillers, towers, fans), generators, cabling, software, security systems, water conservation systems, and related personal property used exclusively for data processing/storage/communication.
• New Jobs: Full-time positions filled by Kansas residents, located at or directly associated with the data center.

3. Eligibility Requirements

To qualify, a firm must:

Requirement	Details	Deadline
Capital Investment	≥ $250 million in eligible data center costs	By end of 5th year of operations
Job Creation	≥ 20 new full-time jobs filled by Kansas residents	Within 2 years of commencement of operations
Electricity	Signed 10-year purchase agreement with the local retail electric utility	Required in the Incentive Agreement
Water	Comprehensive water conservation/reuse plan	Required for approval
Security Review	Full KIFC review + Fusion Center Oversight Board approval	Before any incentive is awarded
Construction Start	Must begin construction within 10 years of the agreement (or earlier as negotiated)	Per Incentive Agreement
Other	Registered & in good standing with Kansas SOS; project capital not from federally sanctioned entities	Ongoing

The exemption period is 20 years from commencement of operations (or as certified).

4. What the Exemption Covers

100% exemption from state and local sales and use tax on:

• Tangible personal property and services used in construction, reconstruction, enlargement, or remodeling.
• Purchase and installation of data center equipment and eligible data center costs.
• Labor to install, repair, service, alter, or maintain data center equipment.

It does not cover electricity, construction tools/machinery of the contractor, or general administrative equipment.

5. Critical Side Provisions

Electricity Rate Ban (the most important “protection”) Public utilities cannot grant data centers the economic-development rate discounts available to other large industrial customers under K.S.A. 66-101j. This was intentional — Kansas lawmakers wanted the tax break but did not want residential ratepayers subsidizing cheap power for data centers.

KIFC Security Review Before Commerce can approve the incentive, the Kansas Intelligence Fusion Center evaluates:

• Equipment and software
• Ownership structure and foreign affiliations
• Operational purpose
• Critical infrastructure risk

The Fusion Center Oversight Board can approve, require modifications, or deny. This is a national-security gate that most states do not have.

Water Conservation Applicants must submit a plan that typically includes recirculation, rainwater harvesting, reclaimed water, efficient cooling, etc. Air-cooled or closed-loop systems are strongly preferred by communities.

6. Application & Certification Process

1. Submit complete application + $1,000 non-refundable fee to Kansas Department of Commerce.
2. Simultaneously submit detailed technical/ownership package directly to KIFC (Commerce never sees the sensitive materials).
3. KIFC / Oversight Board review and approval.
4. Commerce eligibility review.
5. Execute binding Incentive Agreement.
6. Commerce issues Certification Letter to Kansas Department of Revenue.
7. KDOR issues the project exemption certificate (Form PR-70 series process).
8. Contractor uses the certificate for tax-free purchases and retains invoices for 5 years.

Applications are accepted year-round.

7. Compliance, Monitoring & Clawbacks

• Commerce conducts ongoing monitoring + mandatory formal review every 5 years.
• Firms must report investment, jobs, power purchases, and water measures.
• 120-day cure period for deficiencies.
• Remedies for uncured breaches: suspension, modification, termination of the exemption, and clawback (repayment of previously exempted sales tax, proportional to the violation).
• False information or failure to cooperate can trigger full recapture.

8. Practical Implications (“The Real Deal”)

• Attractiveness: The 20-year full sales tax holiday is one of the cleaner, longer incentives in the Midwest. Combined with land availability and (in many places) power headroom, it is working — planned capacity in Kansas has exploded since mid-2025.
• Ratepayer Protection: Stronger than many peer states. Data centers pay full or premium industrial rates and fund their own upgrades.
• Local Control Still Intact: The state incentive does not override local zoning. Cities and counties can still impose moratoriums, special-use permits, or refuse rezoning (as Topeka did in July 2026).
• Jobs Reality: Only 20 permanent jobs required. Most employment is temporary construction. Multipliers (indirect jobs) exist but are often overstated.
• Water & Noise: These remain the biggest local flashpoints. The statute requires a water plan but does not set hard numerical limits — that is left to local negotiation and permitting.
• Security Layer: The KIFC review is unique and can slow or kill projects with problematic foreign ownership or technology.

Bottom Line

SB 98 is a deliberate, carefully structured invitation to large data centers. Kansas opened the door with a generous tax exemption while building in two major guardrails (no power discounts + mandatory intelligence review).

The horse is out of the barn at the state level. Whether individual projects succeed now depends almost entirely on local zoning, politics, water availability, and community resistance.