Texas Lawmakers Debate Data Center Tax Exemptions and Regulations
Texas lawmakers are debating the future of a sales tax exemption for data centers, which currently costs the state over $1 billion annually. Governor Greg Abbott has called for new regulations requiring data centers to fund their own infrastructure and reuse water, while Representative Gina Hinojosa has proposed an immediate moratorium on new facilities. The debate highlights concerns over energy and water resources, along with lost tax revenue.
Texas lawmakers are actively re-evaluating a 2013 sales tax exemption for data centers amidst concerns over their growing financial cost and environmental impact. The exemption, which covers electricity, cooling systems, and servers, is projected to cost taxpayers $3.3 billion for the 2028-29 biennium, up from $14.6 million in 2014-15, according to the Texas Comptroller’s Office. The Texas Senate Finance Committee held a five-hour meeting on Monday to discuss options for limiting or repealing the law, with the Senate Business and Commerce Committee scheduled to hear further testimony.
Data centers in Texas consume substantial electricity and millions of gallons of water daily, raising environmental concerns about carbon emissions and water scarcity in drought-prone areas like Corpus Christi. Dan Diorio of the Data Center Coalition defended the industry, highlighting its economic benefits, job creation, and tax revenue for local communities. A 2026 PricewaterhouseCoopers report projected the industry's economic impact on Texas's GDP at $65.8 billion in 2024.
Governor Greg Abbott, who previously lauded data center investments, has recently shifted his stance, calling for a "sweeping regulatory framework." He proposes that data centers be required to add new power generation to the grid, fund their own infrastructure costs, and reuse their water, alongside eliminating the tax break. Meanwhile, Texas Representative Gina Hinojosa, D-Austin, has urged an immediate special legislative session and a moratorium on new data centers until transparent protections for water and electricity resources can be established. Texas Agriculture Commissioner Sid Miller, a Republican, also supports protecting agricultural communities and resources from unchecked data center expansion. Both Hinojosa and Miller emphasize that only the governor can call a special session.