Regardless of how a person feels about AI-generated social media content, cloud storage or the alleged environmental impacts of data centers, Texans should know that the 300-plus facilities across the Lone Star State are accepting at least $1 billion per year in sales tax exemptions.
The data center industry has ballooned in recent years as more people are incorporating artificial intelligence into their business practices and using ChatGPT to build resumes, write emails and conduct research.
Data centers use excessive amounts of power — close to 1,000 megawatts — comparable to the output of a large power plant and enough to provide electricity for up to 1 million homes. A large data center also uses up to several million gallons of water per day to cool its systems. That’s a concern for Texas cities like Corpus Christi, that are expected to reach emergency status with their water supply by next year if drought conditions persist.
The high electricity demand, fossil fuel reliance and on-site generators have also prompted concerns about toxic carbon dioxide emissions.
And for the past 13 years, qualifying data centers have been exempt from paying sales tax on electricity, cooling systems and servers. The tax exemptions, once thought to be necessary to recruit the centers and boost the Texas economy and job growth, have spiked from $14.6 million in 2014-15 to a projected $3.3 billion for the 2028-29 biennium, according to the Texas Comptroller’s Office.
At a five-hour meeting Monday of the Texas Senate Finance Committee, lawmakers discussed options for limiting or repealing the 2013 sales tax exemption law. The Senate Business and Commerce Committee will convene Wednesday to hear more testimony.
Dan Diorio, executive vice president for state policy and government affairs for the Data Center Coalition, testified that data centers are long-term investments that provide meaningful benefits to the Texas cities where they operate by “creating high-quality jobs, generating critical tax revenue, supporting workforce development and contributing to local economic growth.”
According to a 2026 PricewaterhouseCoopers economic impact report, the data center industry contributed $65.8 economic impact to the Texas Gross Domestic Product in 2024.
Texas Gov. Greg Abbott once touted the economic benefit and job creation that data centers bring, calling the Lone Star State “the epicenter of AI development” in November 2025, when Google announced a $40 billion investment in cloud and AI infrastructure in Texas.
But at a June 30 campaign event in East Texas, the governor said, “We must prohibit [companies] from building AI data centers in rural Texas neighborhoods.” Earlier last month, Abbott called for a sweeping regulatory framework which would require data centers to add new power generation to the grid, pay for their own infrastructure costs and reuse their own water.
“I made clear already: Any AI data center even thinking about coming here, they have to bring their own money, bring their own power, reuse their own water and do it in a way that reduces the cost of electricity for residents across our state,” Abbott said at last month’s event. “We must eliminate the tax break they are getting. They must be responsible for funding their own projects here in Texas. We will get that done.”
That’s not enough, says Texas Rep. Gina Hinojosa, D-Austin, Abbott’s challenger in the November midterm election.
Hinojosa has called for a special session before the Legislature convenes in January, and an immediate moratorium on any new data centers until the state can establish protections requiring greater transparency, local input, licensed labor and safeguards for water and electric resources.
“Greg Abbott talks a big game about what he will do after the election. The thing is, he has the power to do it today,” Hinojosa said in an email to the Houston Press. “This problem is in his lap and in his lap alone. Is this a state that is by and for the people, or the billionaires’ playground and we just live here?”
She isn’t the only one asking for the matter to be taken up immediately, rather than waiting until January. Republican Texas Agriculture Commissioner Sid Miller held a rally Monday morning before the finance committee meeting “in support of protecting Texas’ agricultural communities, water resources, and electric grid from the unchecked expansion of data centers.”
Both Miller and Hinojosa have pointed out that only the governor has the authority to bring back the Legislature for a special session, and to date, he’s opted not to, despite his efforts on the campaign trail to curb new data center construction.
More than 335 data centers are currently operating in Texas, making the Lone Star State second in the nation to Virginia in its use of the facilities. During Monday’s hearing, lawmakers learned that 50 new data center applications could be filed by the end of the year.
Sen. Carol Alvarado, D-Houston, wrote on social media after Monday’s committee meeting, “For once, I might be on the same page as [Sid Miller]. Legislators need to be able to address this immediately in a special session.”
Sen. Paul Bettencourt, R-Houston, also a member of the finance committee, told the Press on Tuesday that the data center industry has grown far faster than anyone expected when the exemption was put in place.
“Data centers got started in Texas in 2013, but the hockey stick hit in 2021 as COVID accelerated the digitization of our entire economy,” he said. “Remote work made where you sleep more important than where you work, and demand for data usage at home exploded.”
The senator added that the exemption helped attract the data center industry, but “now the cost to taxpayers has grown into the billions, and it’s our job to take a hard look at whether the benefits still justify the costs.’
Bettencourt hasn’t committed to whether a special session is necessary but said lawmakers are taking a “much harder look” at data centers than ever before.
Sen. Joan Huffman, R-Houston, chairs the finance committee and said during the hearing that she voted for the sales tax exemption back in 2013 — as did most of the legislators who were serving at that time — but acknowledged that much has changed since then, as the cloud and AI have become more prominent.
“Constituents across the state worry that unchecked growth is placing unsustainable pressure on our energy and water resources while costing the state hundreds of millions, and soon billions, in foregone tax revenue,” she said. “These dollars may otherwise support public ed, property tax relief, public safety, water infrastructure and other vital priorities of the state. That is why I have publicly committed to filing legislation on this issue during the next legislative session. Texans expect us to protect their hard-earned tax dollars.”
