Fed up with data centers? Texas lawmakers might make them pay

The Texas Legislature could eliminate a state sales tax exemption for data centers when lawmakers meet in January.

Texas Sen. Joan Huffman, a Houston Republican who currently chairs the Senate Finance Committee, filed a bill on Monday that would repeal sales and use tax exemptions given to data centers, according to a news release shared on social media.

Monday is the first day of bill filing in Texas ahead of the January legislative session, and the text of Huffman’s proposed legislation was not immediately available online. Thousands of bills are filed each session, but only a fraction become law.

“Texas should welcome investment,” Huffman said in a written statement. “It should not write a blank check.”

The exemptions in question have come under scrutiny as the booming data center industry faces backlash in Texas, particularly in rural areas where many residents oppose the development of new facilities.

Texas offers tax exemptions for data centers following the passage of 2013 and 2015 laws, but the missed revenue has ballooned since the bills took effect. In the 2028-2029 biennium, Texas is expected to lose out on more than $3 billion in revenue because of the tax breaks, according to a Senate interim charge.

“That is not what the Legislature voted for more than a decade ago, and it is not sustainable,” Huffman said Monday.

If passed, existing exemptions would expire when the legislation — Senate Bill 293 — takes effect, and new applications that are pending would be denied, according to the news release.

Supporters of the exemption credit the incentive with helping Texas become a data center industry leader, noting the revenue the industry generates, but opponents believe the exemption is unnecessary and favors businesses over people.

Democrats and Republican officials and candidates from Texas have endorsed eliminating the tax in recent months. Texas Gov.-elect Gina Hinojosa, an Austin Democrat, has expressed support for eliminating the tax exemptions. She previously called on Gov. Greg Abbott, a Republican whom she defeated in the Nov. 3 midterm election, to convene a special session to end the tax policy.

Huffman will return to a Texas Legislature where Republicans hold the Senate majority, but Democrats make up the majority party in the House. She has played a key role in developing the state’s budget as finance chair, but whether she’ll keep the leadership role for the coming session remains to be seen. Lt. Gov.-elect Vikki Goodwin, a Democrat, will serve as president of the chamber.

The next legislative session begins on Jan. 12 and runs through May 31.

Tax exemptions shouldn’t “run on autopilot,” Huffman said.

“Requiring these projects to pay the same sales tax other Texas businesses pay is not anti-growth,” she said. “It is responsible stewardship of the revenue that funds schools, public safety, and the rest of state government. If a project makes sense in Texas, it should make sense without a multi-billion-dollar subsidy.”

Looking beyond the tax exemption, data centers regulations are also expected to come up when lawmakers meet for the coming legislative session. Multiple data center-related bills had already been filed in the House and Senate as of Monday afternoon.

Among the proposals is a bill filed by State Rep. Salman Bhojani, a Euless Democrat, dealing with water use reporting requirements for data centers and water conservation plans for facilities.

A bill filed by incoming state Rep. Armin Mizani, a Republican and former Keller mayor won his bid for House District 98, would require city or county authorization to build a data center. Facilities within the city limits would need a vote of approval from the city council, and data centers in unincorporated areas would require a vote of approval from county commissioners.