Texas lawmakers are considering whether to scale back or eliminate a rapidly growing tax break for data centers.
The costs to the state are projected at $3.2 billion in lost sales tax revenue over the next two years, the Texas Tribune reported.
The exemption, which applies to equipment, infrastructure, and electricity used by data centers, has expanded sharply with the growth of artificial intelligence and large-scale computing demand.
State Sen. Joan Huffman, who chairs the Senate Finance Committee, said the rising cost has triggered concern ahead of the next legislative session.
"These new numbers are extremely concerning, and I will say they’re unsustainable," Huffman said. "I plan to look at filing legislation to either repeal the exemption or take a very close look at it and see."
The tax break, originally modest in scope, has grown from tens of millions of dollars annually to more than $1.3 billion this year, with projections reaching nearly $1.8 billion annually by 2030.
Lawmakers are weighing options that include repealing the exemption, reducing its scope, shortening its duration, or tightening eligibility requirements tied to job creation and investment.
Supporters of the incentive argue it has helped position Texas as a leading destination for data centers and warn that changes could slow investment.
"I think the hostile message that sends would … give a lot of different companies pause about what the state of being able to invest in Texas for the long term is," said Dan Diorio of the Data Center Coalition.
Others question whether the tax break is necessary to attract companies.
"There are many reasons why a company decides to build in a particular area, and taxes is far from the most important," said Dick Lavine, a former fiscal analyst.
"Somebody’s giving out money; [the companies] want to be in line. But it’s not really how decisions are made, especially when there’s bedrock things like land and energy that are much more important than their tax rate," Lavine said.
Economist Nathan Jensen said lawmakers must balance investment incentives with tax revenue.
"The whole point is to get some sales tax revenue," Jensen said. "So even if you lost half the investment, but you taxed it at full value, from a taxpayer perspective, that’s a win, right?"
The Legislature is expected to begin a formal review of the tax break in upcoming hearings as proposals to revise or eliminate it move forward.
Jim Mishler ✉
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