Texas is projected to lose billions of dollars in sales tax revenue over the coming years as a result of tax breaks granted to the rapidly expanding data center industry. The state comptroller’s office estimates a loss of $3.2 billion over the next two years alone.

Growing Financial Impact

The tax break, initially intended to incentivize a smaller data center market, is now becoming one of the most expensive incentive programs in Texas. It’s on track to become the costliest of its kind nationwide.

Revenue Loss Escalation

From 2014 to 2022, the exemption resulted in an annual loss of between $5 million and $30 million. However, by 2023, this figure jumped to over $150 million. This year, Texas is projected to forgo at least $1.3 billion, with that amount increasing annually.

Legislative Considerations

Lawmakers will convene in January for the upcoming legislative session to discuss potential solutions. Proposals include restricting the scope of the tax break or eliminating it entirely.

Senator's Plan

One senator stated he plans to introduce legislation to either repeal the exemption or conduct a comprehensive review of its effectiveness. He emphasized the need to address the growing financial burden.

Comparison to Other Programs

The cost of the data center tax break is now surpassing the controversial Chapter 313 tax abatement program, which was discontinued last year. The lost revenue could potentially double the size of the state’s disaster fund, aiding local communities in flood prevention.

Data Center Growth

The unanticipated growth in data centers became apparent just three years ago. Texas currently has over 300 operational data centers, with more than 100 additional projects planned or underway. The state leads the nation with 142 data centers currently under construction, surpassing Virginia’s 141.

Industry Concerns & State Competition

Data center industry leaders have voiced concerns that reducing or eliminating the tax break could jeopardize Texas’s position as a leading destination for data centers. They argue that any perceived hostility could deter long-term investment.

National Trend

Texas is one of 37 states offering tax exemptions for data centers. Several other states, including Virginia, Illinois, Michigan, Arizona, and Georgia, are also considering modifications or reductions to their tax incentives. Industry representatives maintain that tax breaks are vital for attracting investment and generating jobs.

However, critics argue that factors like affordable land and electricity are equally, if not more, important in investment decisions.