Texas spends billions on tax breaks for data centers. There’s a bipartisan legislative push to repeal them.
Texas lawmakers are considering repealing a decade-old sales tax exemption for data centers, citing billions in lost state revenue. Despite industry warnings, a bipartisan legislative push is underway, with calls for a special session and a gubernatorial pledge to repeal the tax break and impose new regulations if reelected. Public and political opposition cites concerns about costs, water usage, grid strain, and noise.
Texas lawmakers are actively considering the repeal or significant modification of a 2013 sales tax exemption program for data centers, which currently costs the state over $1 billion annually. The Texas Comptroller's office estimates a $3.2 billion loss in sales tax revenue over two years, with chief revenue estimator Brad Reynolds indicating this figure is likely to rise significantly due to an "explosive growth" in data center certifications since 2021.
During a July 27 Senate Finance Committee interim hearing, a bipartisan group of senators, including Charles Schwertner, Donna Campbell, Carol Alvarado, Lois Kolkhorst, Joan Huffman, and Royce West, expressed strong disapproval of the program's cost and perceived lack of benefit to Texans. Senator Huffman, the Senate's chief budget writer, committed to filing legislation to address the issue in the next legislative session, starting in January. Calls for a special legislative session to address the tax breaks and increase data center regulations have also been made by lawmakers and Texas Agriculture Commissioner Sid Miller.
Governor Greg Abbott, who previously championed Texas as an "epicenter of AI development," has not publicly commented on a special session but announced a plan to repeal the tax exemption, require data centers to cover their own infrastructure costs, and establish noise standards if he is reelected in November. The Data Center Coalition, an industry advocacy group, warned that repealing the tax break could harm Texas's competitiveness. However, public commenters and legislators raised concerns about the data center industry's impact on local communities, citing issues like lack of transparency, light pollution, strain on water availability in drought-stricken areas like Corpus Christi, Raymondville, and El Paso, and demands on the electric grid infrastructure.