Texas Lawmakers Debate Data Center Sales Tax Exemptions
Texas lawmakers are re-evaluating sales tax exemptions for data centers, which could cost the state billions in forgone revenue. The debate includes concerns about the industry's economic benefits versus its impact on power and water resources, with lawmakers and the governor discussing potential changes to the incentive program.
The Texas Senate Finance Committee held a hearing to examine the state's sales tax exemptions for data center projects. State officials estimate these incentives could cost Texas $3.3 billion in forgone tax revenue during the 2028-29 budget cycle. While the legislature granted special tax breaks in 2013 and 2015 to attract data centers, the controller's office has found that six out of 20 audited projects failed to meet the requirements for incentives, such as creating 40 full-time jobs and investing $500 million, leading some lawmakers to question the program's effectiveness and oversight. The data center industry argues it contributes significantly to Texas's GDP, citing a PWC study that claims $65.8 billion in 2024.
The sales tax incentives have become a significant point of debate in the Texas gubernatorial race. Governor Greg Abbott has pledged to work with the legislature to repeal "outdated or unnecessary incentives," while his Democratic opponent, State Representative Gina Hinahosa, criticizes Abbott for previously signing one of the tax incentives into law. Texas Railroad Commissioner Wayne Christian, however, supports data center proliferation, stating it can bring billions of dollars in taxes and jobs, especially to rural Texas.
Alongside financial concerns, there is growing public and legislative worry about the strain data centers place on Texas's energy and water infrastructure. Lawmakers discussed how energy demand could nearly double in the next six years, with ERCOT, the state's grid operator, forecasting that almost 94% of proposed large load growth will come from data center projects. This comes as Texas experienced record-high energy demand in July, and concerns also extend to water resources, with structural issues in pools highlighting broader water challenges in the state.