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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →Scan for outdated or missing drivers - takes under a minuteDriver Scan →South Dakota’s Senate passed Senate Bill 135 on February 20, 2026, with every senator present voting yes. The version approved by the Senate no longer contained the proposed ban on state or local tax exemptions for data centers. The measure was later signed on March 24 and became Chapter 190 of the 2026 South Dakota Session Laws.
Chapter 190 regulates qualifying, large electricity users through utility-cost, water-use, reporting, and local-control requirements. It does not prohibit South Dakota or its political subdivisions from granting data-center tax exemptions.
What Senate Bill 135 became
SB 135 is officially an act to protect residents from increased utility costs and utility shortages caused by data centers and to clarify authority to regulate them. Supporters called it the “Data Center Bill of Rights for Citizens.” Sen. Chris Karr sponsored the bill, with House Speaker Jon Hansen among the legislative leaders associated with the proposal. The South Dakota Legislature’s bill page identifies the measure and its legislative record.
The Senate vote was an important milestone, but it was not the final legal outcome. After completing the legislative process, SB 135 was signed March 24, 2026, and enacted as Chapter 190.
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| Date | Event |
|---|---|
| January 26, 2026 | Senate and House leaders introduced the Data Center Bill of Rights proposal. |
| February 18, 2026 | The Senate State Affairs Committee advanced SB 135 by a 5–4 vote. |
| February 20, 2026 | The full Senate passed the bill; every member present voted in favor. |
| March 24, 2026 | The governor signed the measure, making it Chapter 190 of the 2026 Session Laws. |
The February Senate vote was reported by South Dakota Searchlight. Early legislative context and the introduction were covered by South Dakota Public Broadcasting.
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Which data centers are covered?
Chapter 190 applies to a centralized facility that processes, stores, manages, disseminates, or otherwise handles electronic information and has peak electrical demand of at least 10 megawatts. That threshold generally targets very large facilities rather than a small business server room or an ordinary enterprise computing installation.
What the enacted law requires
Utilities must set separate service terms
Electric providers must establish separate terms and conditions for serving a covered data center. Those terms must require reimbursement for costs fairly attributed to the facility’s electricity demand and consumption. The statute also addresses costs that could remain if a facility leaves the system or materially reduces its load.
“Fairly attributed” is narrower than requiring an operator to pay every utility expense in the state. The practical result will depend on rate design, negotiated service agreements, cost-allocation methods, regulatory review, and how disputes are resolved. The law does not itself specify one universal formula for generation, transmission, substation, or distribution costs.
Protection against shifting a project’s costs to households
The policy objective is to prevent residential customers from financing infrastructure built primarily to serve a large data center. Whether that protection changes a customer’s bill in practice will depend on how utilities calculate attributable costs and implement their approved terms.
Local governments retain regulatory authority
State law may not preempt or otherwise limit a county, municipality, or other political subdivision from adopting ordinances or resolutions that limit, prohibit, or otherwise regulate data-center construction, development, or operation.
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This is not a statewide permitting system and it is not a guarantee that a project will be approved or rejected. It preserves local power to address land use, noise, water, infrastructure, and other issues under applicable state and federal law. The trade-off is that developers may face different requirements from one locality to another.
Water-use notice and compatibility determinations
Before beginning operations, an operator must notify each applicable local water provider of projected consumption. Each provider must make a written determination about whether that projected use is compatible with the provider’s water supply. The operator must submit the notices and determinations to the Board of Water Management.
If every applicable provider finds the proposed consumption compatible, the board must issue a written statement that the operator has satisfied this statutory requirement. That statement is not an unlimited water-use authorization. The board may establish limits after considering residential needs and essential public services.
Semiannual public reporting
Authorized data centers must submit a water-use report to the Board of Water Management twice each year. The report must include average-use data and certify compliance. The board must make the usage data available to the public.
The law therefore requires average-use reporting, while the approval process must address projected consumption and the board may impose limits. Questions remain about how the state will evaluate drought conditions, seasonal demand, multiple projects drawing from one system, inaccurate projections, and enforcement of noncompliance.
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What was removed: the proposed tax-exemption ban
The original proposal included language stating that the state or a political subdivision could not authorize or grant a tax exemption to a data center. That language was removed before Senate passage. The amendment text showing the proposed language is available from the South Dakota Legislative Research Council.
The final Chapter 190 text contains no statewide or local prohibition on data-center tax exemptions. It is therefore inaccurate to say that South Dakota banned data-center tax breaks.
The word “tax exemption” also should not be treated as a synonym for every form of public assistance. A sales-tax exemption, a sales-tax refund, a reinvestment payment, a tax-increment-financing district, property-tax treatment, and a grant can have different legal structures and fiscal effects. Chapter 190’s removal of the proposed exemption ban does not, by itself, decide how every incentive program may be used.
Why lawmakers and industry disagreed
Supporters framed the bill as a fairness and infrastructure measure. Their argument was that data centers should pay the costs they create, avoid shifting electric-system expenses to households, and demonstrate that water supplies can support operations. Hansen described the issue as one of fairness rather than opposition to data centers generally, according to SDPB’s January 26 report.
Industry representatives argued that removing long-term incentives could make South Dakota less competitive. Applied Digital executive Nick Phillips said the company viewed the state as substantially more expensive than competing states because of taxes on equipment and energy, and estimated roughly $2 billion in additional construction cost. That is an industry estimate attributed to Phillips, not an independently verified statewide fiscal finding.
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- Residents and consumer advocates: seek protection from ratepayer subsidies and pressure on scarce water supplies.
- Developers and economic-development officials: argue that incentives can affect site selection, construction investment, jobs, and tax-base growth.
- Local governments: want authority to decide whether a project fits local infrastructure and land-use conditions.
- State lawmakers: sought statewide guardrails without eliminating local control or foreclosing future economic-development policy.
How SB 135 fits with other 2026 proposals
SB 135 was one part of a broader debate, not a complete data-center policy package. Other measures addressed different policy choices:
| Measure | Subject |
|---|---|
| HB 1005 | Proposed a sales-and-use-tax exemption for goods and services related to data-center operations. |
| SB 239 | Proposed a large-project incentive process that could allow a state sales-tax exemption for up to 30 years if approved through the specified economic-development process. |
| SB 232 | Proposed a one-year moratorium on new construction or expansion of hyperscale data centers. |
| SB 127 | Addressed nuisance issues, including proposed noise and setback restrictions. |
| SB 128 | Addressed large-use utility customers. |
| SB 234 | Concerned purchasing provisions related to data-center operations. |
SDPB summarized the competing proposals and the incentive debate in its February 18 committee report. The Legislature’s 2026 data-center bill index provides the broader subject listing.
What Chapter 190 does not do
- It does not ban data centers statewide.
- It does not create the one-year hyperscale moratorium proposed in SB 232; that was a separate bill, available at the Legislature’s SB 232 page.
- It does not prohibit state or local tax exemptions for data centers.
- It does not require an operator to pay every utility cost statewide; the standard is costs fairly attributed to the facility.
- It does not cover every facility described casually as a “data center”; the statutory threshold is peak demand of 10 megawatts or greater.
Questions that implementation will determine
The statute establishes guardrails, but several practical issues will be worked out through utility and agency processes:
- How utilities allocate generation, transmission, substation, and distribution investments to a project.
- How contracts or tariffs handle cancellation, departure, or a material load reduction after infrastructure is built.
- Which entity resolves disagreements over what costs are fairly attributable.
- How water providers assess cumulative projects, drought, seasonal demand, and future residential growth.
- How the Board of Water Management sets limits while prioritizing residential and essential public-service needs.
- What enforcement follows inaccurate projections, incomplete reports, or failure to comply.
- How local ordinances affect project schedules and site-selection decisions.
Bottom line for South Dakota residents and developers
The February 20 headline was accurate about the Senate vote: lawmakers passed SB 135 after removing the proposed tax-exemption prohibition. The current legal answer is broader and later in time: the bill became Chapter 190 on March 24, 2026. Large data centers must meet utility-cost and water-use requirements, report water use twice a year, and remain subject to local regulation. South Dakota did not enact a blanket ban on data-center tax exemptions, so future incentive decisions remain separate policy questions.
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