Texas lawmakers question whether multibillion-dollar data center tax break still benefits the state
Texas lawmakers are scrutinizing a state sales tax exemption for data centers, which is now projected to cost the state billions, far exceeding initial estimates. The Senate Finance Committee is examining the incentive's cost and consequences amid concerns over job creation and compliance monitoring. Separately, activists and some government officials are calling for a moratorium on new data center development due to environmental and infrastructure impacts.
Texas lawmakers are questioning the efficacy of a multibillion-dollar sales tax exemption designed to attract data centers, which was established in 2013. The incentive, initially expected to cost the state millions, is now projected to lead to over $3 billion in foregone tax revenue by the 2028-29 biennium, prompting a hearing by the Texas Senate Finance Committee on its "cost and consequences" ahead of the 2027 legislative session.
Brad Reynolds, chief revenue estimator for the Texas Comptroller's Office, testified that initial estimates significantly underestimated both the number and scale of data center projects, with companies investing far more than projected. Applications for the exemption accelerated after 2021, driven by the digital economy and artificial intelligence demands. Senator Paul Bettencourt (R-Houston) highlighted the rapid technological evolution since the incentive's inception.
Concerns were raised by Senator Juan "Chuy" Hinojosa (D-McAllen) about the sustainability of the foregone revenue and whether the state receives sufficient benefits, especially given the limited number of permanent jobs created by these facilities. Reynolds acknowledged that some companies have struggled to meet the program's minimum requirement of 20 workers. Lawmakers also questioned the state's oversight, noting that audits found several of the 138 certified data centers out of compliance, with one company ordered to repay $5.6 million.
While the Data Center Coalition, represented by Dan Diorio, argued that data centers contributed $4.5 billion in state and local tax revenues and over $65 billion to Texas' GDP in 2024, creating more than 103,000 jobs, the debate continues. Governor Greg Abbott has shifted his stance, now advocating for limits on future data center development, particularly in rural areas due to concerns over water, land, and local infrastructure strain. Agriculture Commissioner Sid Miller led a rally at the Capitol, urging Governor Abbott to call a special legislative session for new rules and oversight, citing water scarcity concerns as a major threat to Texans' way of life.