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Texas Moves to Curb Data‑Center Sales‑Tax Exemption

Lawmakers view rising projected revenue losses and limited compliance audits as reasons to rewrite or end the decade‑old sales‑tax break for qualifying data centers.

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The pressure is on Governor Greg Abbott as data center opponents push for a special legislative session on the massive artificial intelligence sites. A recent poll by UT's Texas Politics Project showed 56% of Texans oppose building data centers in their communities. Grassroots organizers said it is time to turn up the volume on their demands for Governor Abbott to “press pause on data centers. (Photo: CBS Austin)
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.
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Overview

  • A Senate Finance interim hearing this week accelerated bipartisan momentum to change the law after officials warned the program’s cost has ballooned and oversight is thin.
  • The Texas Comptroller projects the exemption will cost roughly $3.2–$3.3 billion in the 2028–29 biennium and says 138 data centers now hold qualified exemptions.
  • Comptroller testimony showed only 20 of those projects have been audited and auditors found six that failed to meet investment or job requirements, triggering repayment obligations in some cases.
  • Senate Finance Chair Joan Huffman pledged to file reform or repeal legislation for the 2027 regular session and Governor Greg Abbott has directed regulators to limit ratepayer exposure while stopping short of calling a special session.
  • Local protests and county fights over water, noise and grid strain are pressuring lawmakers and could shape final reforms that balance grandfathering existing deals with stricter future rules and new infrastructure costs for developers.