Senator Padilla's data center tax legislation establishes a partial sales and use tax exemption for certified data center facilities in California, capping the tax rate at 2 percent for qualified equipment purchases. The measure creates certification requirements for data centers seeking tax relief, including minimum investment thresholds and operational standards.

Under the legislation, data centers must invest at least $200 million and create 20 qualifying jobs within five years of certification. The facilities must also meet specific environmental criteria, including sourcing 70 percent of energy consumption from carbon-free sources in their first year of operation, utilizing recycled water cooling systems, and implementing waterless landscaping. The measure prohibits the use of diesel fuel backup power systems.

The California Department of Tax and Fee Administration and the Governor's Office of Business and Economic Development share oversight responsibilities, with GO-Biz managing facility certification and CDTFA administering tax compliance. The exemption applies from January 1, 2025 through December 31, 2045, though facilities must maintain certification requirements throughout their qualification period or face revocation and retroactive tax liability. Local sales and use taxes remain unaffected, as do state tax revenues dedicated to local government funding programs.