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4h ago

Texas Lawmakers Move to Rework Data-Center Sales Tax Break as Cost Tops $3.3 Billion

State leaders plan statutory reforms next session in response to rising fiscal losses from the exemption, audit shortfalls, and growing public pressure

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People gather on the South Steps of the Texas Capitol to protest data center expansion before a Texas Senate Committee on Finance hearing in Austin, Monday, July 27, 2026.
From left, at front and standing: Don’t Drain Texas organizer Maggie Hill, Agriculture Commissioner Sid Miller and Clayton Tucker, Democratic nominee for agriculture commissioner, join protesters on the Capitol steps in demand of a special session to regulate data center growth before a Senate Committee Hearing on Monday, July 27, 2026.
Maggie Hill, left, of Wimberley, and Texas Agriculture Commissioner Sid Miller join people on the South Steps of the Texas Capitol to protest data center expansion before a Texas Senate Committee on Finance hearing in Austin, Monday, July 27, 2026.

Overview

  • Senate Finance Committee hearings on Monday revealed the Comptroller’s estimate that sales-tax exemptions for qualifying data centers will cost Texas about $3.2–$3.3 billion in the upcoming budget cycle.
  • State audits have lagged: only 20 of 138 certified data centers have been audited and six audits found failures to meet job, investment or build-size requirements, with the comptroller warning more noncompliance likely.
  • Governor Greg Abbott this month ordered regulators to require data centers to pay for their own grid connections, reuse water and not shift infrastructure costs to ratepayers, a directive that led at least one developer, Diode, to withdraw a project.
  • A statewide 'week of action' by environmental and community groups pressed for an immediate moratorium or a special session, citing local harms such as noise, traffic, strain on water supplies and the large water use of hyperscale sites reported at 3–5 million gallons per day.
  • Lawmakers from both parties signaled plans to file reforms when the Legislature reconvenes in January that could limit or repeal the exemption, tighten audits and oversight, and add siting or infrastructure rules while industry warns changes could affect investment.