Texas senators question $3.3 billion cost of data center tax breaks

Texas lawmakers are taking a closer look at special sales tax exemptions granted to data centers, a program established by the Texas Legislature in 2013-2015. Initially intended to attract development, the incentives require projects to be at least a quarter-million square feet, create 40 full-time jobs, and have at least $500 million in capital investment. Companies have five years to meet these goals, and the Comptroller's Office can only audit them afterward.

Currently, 138 data centers have been granted these exemptions, with five more pending approval, a significant increase from just 10 before 2021. State officials now estimate the program could cost Texas $3.3 billion in foregone tax revenue during the 2028-2029 budget cycle. Lawmakers question whether the tax breaks, created over a decade ago, still make sense, especially after audits revealed that 6 out of 20 eligible data centers failed to meet the requirements.

The data center industry argues that its economic contributions, totaling $65.08 billion to Texas GDP in 2024 according to a PWC study, more than offset the incentives. However, some lawmakers remain skeptical, wondering if data centers would operate in Texas regardless of these exemptions. The sales tax incentives have also become a central issue in the Texas gubernatorial race. Governor Greg Abbott has pledged to work with the legislature to "repeal sales tax exemptions and other outdated or unnecessary incentives for data centers," while his Democratic opponent, State Representative Gina Host, previously stated that Abbott lacks credibility on reining in data centers, attributing their presence in Texas to his past actions.