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Sen. Lois Kolkhorst, R-Brenham, asks questions at a Texas Senate Committee on Finance hearing on data center investment and state fiscal effects at the Capitol in Austin, Monday, July 27, 2026.<\/p>\n
Jay Janner\/Austin American-Statesman<\/p>\n
Sue Ellen Davis of Angleton protests data center expansion at a rally at the Capitol before a Texas Senate Committee on Finance hearing in Austin, Monday, July 27, 2026.<\/p>\n
Jay Janner\/Austin American-Statesman<\/p>\n
Sen. Joan Huffman, R-Houston, listens during a Texas Senate Committee on Finance hearing on data center investment and state fiscal effects at the Capitol in Austin, Monday, July 27, 2026.<\/p>\n
Jay Janner\/Austin American-Statesman<\/p>\n
A key panel of state lawmakers appeared open on Monday to repealing or limiting a decade-old sales tax exemption for data centers that has come under scrutiny for costing billions of taxpayer dollars amid the boom in artificial intelligence.\u00a0<\/p>\n
Facing mounting backlash from rural communities over the resource-intensive computing centers, lawmakers from both parties agreed it was time to end the subsidy, which is projected to cost the state $3.3 billion in its upcoming budget cycle.\u00a0<\/p>\n
The 2013 law, a sales tax exemption for qualifying data centers, means data center developers don\u2019t pay taxes on things like electricity, cooling systems and servers for up to two decades.\u00a0<\/p>\n
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READ MORE:\u00a0A rare bipartisan coalition takes aim at Texas data centers, urging Abbott to call a special session<\/a><\/p>\n \u201cWhat we thought we were voting for back in 2013, it\u2019s a much different animal these days,\u201d said state Sen. Joan Huffman, a Houston Republican who chairs the Senate finance committee. \u201cIt\u2019s time and it\u2019s appropriate and necessary for the Legislature to reexamine whether this exemption still delivers a return that justifies its rapidly mounting foregone tax revenue.\u201d\u00a0<\/p>\n Lawmakers initially forecast that the exemption would cost the state only $14.6 million<\/a> in forgone revenue in 2014 and 2015.<\/p>\n But even early projections \u201csignificantly\u201d underestimated the cost of the sales tax exemption, said Brad Reynolds, the chief revenue estimator at the comptroller\u2019s office. \u201cOf course, we never anticipated the kind of rapid development in numbers and scale that we see today.\u201d\u00a0<\/p>\n Article continues below this ad<\/p>\n In 2026, the number of data centers that qualify for the exemption has nearly doubled, Reynolds said. Of the 138 eligible data centers, 59 have been certified this year alone.<\/p>\n The comptroller\u2019s office is required to audit companies receiving the exemption five years after they qualify. Of the 20 projects audited so far, five failed to comply with the requirement that a project create 20 full-time jobs.\u00a0<\/p>\n \u201cThese are highly capital intensive projects, and to be unable to justify employment of even 20 people on a permanent basis at one of these things tells you how little employment is really stemming from this, at least in terms of direct employment,\u201d Reynolds said.\u00a0<\/p>\n