Data center development is accelerating across the Midwest as states seek to capture the economic benefits of this critical infrastructure while balancing environmental and community priorities. The region’s central location, affordable land, and energy resources have made it a hotspot for investment. Illinois has emerged as a leader, attracting billions in new projects through tax incentives, a robust grid, and its role as a national connectivity hub. Minnesota’s new data center law positions the state to compete by offering clear rules that promote growth while protecting long-term public interests. Meanwhile, Wisconsin is laying the groundwork to attract future development as it works to balance opportunity with sustainability.
Minnesota’s New Data Center Rules
As states across the country compete to attract high-capacity data centers, Minnesota emerged from its recent special session with a compromise aimed at clarifying the state’s regulatory framework for data centers. Data center legislation became one of the special session’s central issues, with Democrats wanting stronger environmental and community safeguards and Republicans pushing for tax credits and regulatory reform. A deal was struck to balance those priorities. HF16/SF19 not only clarifies the rules of the road for data center development in Minnesota, but it also reflects the balancing act between economic growth, environmental concerns, and long-term public benefit.
What’s in the New Data Center Law?
First, the bill creates two main categories of data centers: standard data centers designed for 100 or more megawatts of electrical load, and qualified large-scale data centers requiring investments of $250 million or more over 60 months, which unlock the most significant benefits.
Next, the legislation creates streamlined permitting processes by coordinating state agencies to refer data center permitting applications to the Minnesota Business First Stop Program, creating a single point of contact that could potentially save developers months of delays. For water oversight, data centers using 100 million gallons or more annually face new requirements including pre-application evaluations to assess water availability, mandatory conservation measures such as closed-loop systems and water recycling, and multi-agency coordination to protect public health and environmental resources.
By establishing standards around permitting, energy use, water management, and community contributions, the State aims at creating a more stable environment for development–one that aligns with Minnesota’s broader energy goals, workforce development, and economic opportunity. At the same time, the framework is designed to be a clear incentive for industry, a carrot that rewards responsible investment with long-term regulatory predictability and significant financial benefits.
Energy and grid integration was also a key focus, with utilities being required to establish special rate structures by December 2026 to ensure that data centers contribute fairly to grid costs without putting the burden on ratepayers.
Additionally, a new tariff allows data centers to purchase power directly from new renewable projects at full cost. The financial framework provides enhanced tax benefits for qualified large-scale data centers through expanded sales tax exemptions on equipment and materials, with exemption periods extending from 20 to 35 years. However, large facilities must also pay annual fees based on peak demand, ranging from $2 million annually for 100-250 MW facilities up to $5 million annually for those exceeding 750 MW, with these fees funding energy conservation programs for low-income Minnesotans statewide.
What’s the Takeaway?
Minnesota’s new data center legislation represents a pragmatic step toward enabling responsible industry growth. While there is still room for refinement as the market evolves, this framework offers the clarity and direction needed for investment to move forward with confidence.
For developers, the law delivers more predictable permitting timelines, clear regulatory expectations, and long-term tax incentives, critical elements that they will be relying on for siting and building large-scale infrastructure. But the benefits come with clear responsibilities. Data centers entering the Minnesota market will need to prioritize environmental stewardship through efficient water use, renewable energy sourcing, and contributing to the energy equity programs.
At the same time, communities and local governments gain assurance that environmental impacts will be proactively managed, and that development will align with public interest goals like grid reliability and workforce development. The result is a more balanced landscape of economic opportunity, environmental protection and long-term community benefit for Minnesotans.
-Kayla Christensen, Public Affairs Director