Texas Lawmakers Weigh Repealing Billion-Dollar Data Center Tax Breaks

The Government of Texas is considering limiting or repealing a sales tax exemption for data centers after the program's cost surged from under $30 million annually before 2023 to at least $1.3 billion this year. The state is projected to lose $3.2 billion in sales tax revenue over the next two years, with costs potentially reaching $1.8 billion annually by 2030. This growth is driven by the artificial intelligence boom and the resulting demand for massive computing power.

Under the current policy, facilities exceeding 100,000 square feet avoid the 6.25% state sales tax on electricity, construction, and equipment if they meet investment and job creation benchmarks. State Senator Joan Huffman and Lieutenant Governor Dan Patrick are leading efforts to review the incentive, with the Senate Committee on Finance scheduling an interim hearing for July to determine if the program should be limited or totally repealed.

Industry representatives argue that removing these incentives would send a hostile message to investors and jeopardize the state's position as a top destination for tech infrastructure. However, critics and local movements in Amarillo and San Marcos have raised concerns over the industry's heavy consumption of water, land, and energy. This legislative tension mirrors similar debates in Virginia and Illinois, the latter of which has already suspended its data center tax break.