Data centers seeing $1 billion in annual tax breaks

AUSTIN – Texas will lose out on $3.2 billion in sales tax revenue over the next two years thanks to an exemption for the state’s booming data center industry, according to the comptroller’s office. That figure is likely a vast underestimate given the explosion of new facilities being built, but already makes the tax break one of the state’s costliest incentive programs and soon to be the most expensive of its kind in the nation. Lawmakers, who will meet in January for the next legislative session, say they are considering proposals to either limit the scope of the tax break or get rid of it altogether. Lawmakers approved the tax break more than a decade ago, when data centers were smaller and required fewer resources. From 2014 to 2022, the exemption amounted to between $5 million and $30 million in lost state revenue per year. By 2023, that skyrocketed to more than $150 million, and this year Texas is forgoing at least $1.3 billion — a number that is rapidly increasing every year, based on state projections.

The money Texas is poised to lose from the tax break on a yearly basis could pay for the entirety of the state’s new school voucher program, or it could double the size of a state disaster fund to help local communities like Kerr County prevent flooding. It’s also quickly outpacing the cost of Texas’ highly controversial Chapter 313 tax abatement program, which allowed manufacturing companies to avoid paying local school property taxes, drawing the ire of lawmakers who eventually shut down the program last year at its height of more than a billion dollars a year.

Texas already has more than 300 operating data centers, with more than 100 additional projects planned or under development. At least 142 more are currently under construction, leading the nation and beating out Virginia, which has 141 under construction, according to an analysis by data firm Aterio. By fiscal year 2030, the comptroller’s office forecasts the annual value of the tax break will be nearly $1.8 billion — a $500 million increase from the current fiscal year — according to the 2025 report.