Texas Senate panel raises concerns over tax exemption for data centers
A Texas Senate panel is considering repealing or limiting a decade-old sales tax exemption for data centers due to its escalating cost and growing backlash from rural communities. The exemption, which covers essential items like electricity and servers, is projected to cost the state $3.3 billion in its upcoming budget cycle. Governor Abbott has also committed to ending outdated incentives for data centers.
A key panel of Texas state lawmakers is exploring the repeal or limitation of a 2013 sales tax exemption for data centers. The exemption, which allows data center developers to avoid taxes on items such as electricity and cooling systems for up to two decades, is projected to cost the state $3.3 billion in the upcoming budget cycle.
State Senator Joan Huffman, a Houston Republican and chair of the Senate finance committee, expressed concerns that the exemption no longer provides a justified return given the industry's rapid growth and the associated costs. Brad Reynolds, chief revenue estimator at the comptroller's office, noted that early projections significantly underestimated the exemption's cost and that many eligible data centers have failed to meet job creation requirements. Governor Abbott has also pledged to work with lawmakers to repeal this and other 'outdated or unnecessary incentives'.
However, not all lawmakers support a full repeal. State Senator Paul Bettencourt, also a Houston Republican, argued that the data center industry is 'integral' to the state's economy, emphasizing public reliance on cloud services. Dan Diorio of the Data Center Coalition warned that repealing the exemption could impact Texas's long-term competitiveness. In anticipation of the hearing, grassroots organizers convened at the Capitol to protest the computing centers and urge Governor Abbott to call a special session.