Texas losing a billion dollars a year on data center tax break

The state of Texas is facing a projected loss of at least $3.1 billion in sales tax revenue over the next two years due to a tax exemption for the data center industry. This incentive program, one of the state's costliest, is rapidly escalating in value, with the state forgoing $1.3 billion this year alone, a figure projected to reach nearly $1.8 billion annually by fiscal year 2030. Lawmakers, including State Sen. Joan Huffman, chair of the Senate Committee on Finance, have expressed "extreme concern" and deem the current trajectory "unsustainable," indicating plans to introduce legislation to either repeal or significantly revise the exemption. Lt. Gov. Dan Patrick has also directed the Senate to study the issue and propose safeguards to ensure Texans benefit from data center investment. The sales tax break, approved over a decade ago when data centers were less resource-intensive, covers purchases related to building and maintaining facilities, including servers, cooling systems, and importantly, electricity costs. To qualify, data centers must meet thresholds for job creation and capital investment. Critics, such as Dick Lavine, a former fiscal analyst for Every Texan, argue that factors like cheap land and electricity are more significant drivers for data center location than tax breaks. The Data Center Coalition, represented by Vice President of State Policy Dan Diorio, contends that ending the tax break would send a "hostile message," jeopardizing Texas' status as a top destination for data centers and hindering job creation and local investment. Diorio emphasizes that data centers are crucial for the 21st-century economy, facilitating online purchases, banking, and telehealth. The debate in Texas mirrors similar discussions in other states like Virginia, Illinois, Michigan, Arizona, and Georgia, which are also re-evaluating their data center tax incentives due to concerns over their fiscal impact and the industry's consumption of resources like electricity and water. Data centers are also facing increasing unpopularity among local communities, with grassroots movements in cities like San Marcos, Amarillo, College Station, Waco, and Harlingen pushing to block projects.