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Texas has not repealed its data-center tax incentives. Qualifying projects can still receive substantial sales-tax exemptions, but Governor Greg Abbott said in June 2026 that he would work with lawmakers to repeal or phase out some data-center incentives and called for changes to how projects bear electricity, water, and community costs. As of August 16, 2026, that is a policy agenda—not an enacted statewide repeal. For developers and investors, the practical question is whether a project qualifies under current law and how its economics would change if the Legislature narrows the benefits.
What Texas offers today
Texas has two state-administered sales- and use-tax exemptions for qualifying data centers. The thresholds and tax coverage differ substantially: the standard exemption covers the state tax, while the large-project exemption can cover state and local sales tax. Neither is a blanket exemption for every data-center expense. The Texas Comptroller sets out the eligibility rules, exclusions, application process, and verification requirements in its data-center exemption guidance.
| Program | Minimum facility size | Investment and jobs | Power requirement | Tax covered | Maximum term |
|---|---|---|---|---|---|
| Qualifying data center | 100,000 sq. ft. in one building or portion of a building | At least $200 million invested over five years; at least 20 qualifying jobs in the county | No specific transmission-capacity threshold listed in the Comptroller summary | State sales and use tax (6.25%); local tax remains due | 10 years at $200 million to under $250 million investment; 15 years at $250 million or more |
| Qualifying large data-center project | 250,000 sq. ft. across one or more buildings on a single parcel or contiguous commonly owned parcels | At least $500 million invested over five years; at least 40 qualifying jobs | Contract for at least 20 MW of transmission capacity | State and local sales and use tax | 20 years |
Both programs generally require a single qualifying occupant and impose rules against subleasing. A project’s business and occupancy structure therefore matters as much as its planned square footage or capital budget. The large-project program’s size, job, investment, and power thresholds are cumulative; high spending alone does not qualify a smaller facility for that classification. See the Comptroller’s data-center FAQ for application details, including multi-owner and operator questions.
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The exemption is for qualifying property necessary and essential to processing, storing, or distributing data, subject to statutory and administrative conditions. Servers, cooling systems, and power equipment may qualify when the specific property and transaction meet those rules; that does not make every construction or operating cost exempt. The Comptroller identifies limits and exclusions involving such items as office equipment and supplies, janitorial and maintenance supplies, property used primarily for sales or transportation, short-term rentals or leases, certain property incorporated into real estate, certain repair or remodeling costs, taxable services, and property tied to another tax-refund program. The governing statute is Texas Tax Code §151.318.
In practice, treat eligibility as a transaction-level question. Keep qualifying purchases distinct from nonqualifying ones and retain invoices, contracts, equipment descriptions, and supporting records. Do not assume that a project’s certification makes every purchase for the site exempt.
How to apply—and why the date matters
The usual sequence is to obtain or apply for a Texas Sales or Use Tax Permit or Direct Payment Permit, determine which exemption category the project meets, and prepare a site plan or building schematic and evidence for the investment, employment, and, for a large project, transmission-capacity commitments. File Form AP-233 for a qualifying data center or Form AP-236 for a qualifying large data-center project. After Comptroller certification and registration, Form 01-929 is the exemption certificate accepted by sellers. The Comptroller’s program page provides current materials and forms.
The exemption period starts on the Comptroller’s certification date—not automatically on site acquisition, construction start, or opening. Certification timing can therefore affect the usable value of a 10-, 15-, or 20-year benefit. The Comptroller checks investment and job creation at the five-year anniversary; large projects should plan for that verification and keep records capable of substantiating the commitments. A proposed commitment is not the same as qualifying investment or jobs verified under the program.
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On June 10, 2026, Abbott directed the Public Utility Commission of Texas and ERCOT to protect residential ratepayers from data-center infrastructure costs. He said he would work with lawmakers on measures to make data centers pay their own electric-infrastructure costs, require new facilities to add generating capacity rather than only demand, promote water-efficient technologies such as closed-loop cooling, require annual electricity and water-use reporting for large data centers, and reduce local effects such as noise. He also said he would work with the Legislature to repeal sales-tax exemptions and other outdated or unnecessary data-center incentives. The Governor’s announcement and directive letter state those priorities.
Those statements do not themselves amend the tax code. As of August 16, 2026, the available official material establishes a proposed legislative direction, not a statewide repeal already in effect. The infrastructure, water, reporting, and local-impact priorities should likewise not be mistaken for conditions already added to the data-center sales-tax statute. A project should distinguish current legal requirements from policy proposals, utility processes, and local development conditions.
Several legislative paths are possible, but they are scenarios rather than confirmed proposals unless reflected in filed and enacted legislation: full repeal; repeal for future projects while protecting already certified projects; higher investment or job thresholds; a shorter exemption; or eligibility conditioned on generation, grid services, water efficiency, reporting, or local benefits. The Legislature could also leave the tax exemption unchanged and address cost allocation through regulation or utility policy. Transition rules, effective dates, and grandfathering are unresolved until legislation says otherwise.
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For context, HB 5588 in the 89th Legislature was an introduced proposal concerning ad valorem taxation of data-center property. An introduced bill is not enacted law and should not be treated as the current rule or as proof that a particular future policy will pass.
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Chapter 313 was a former school-property-tax limitation program; it expired for new applications, although existing agreements and the debate around it remain relevant. The current data-center sales-tax exemption excludes data centers whose property is subject to a former Chapter 313 appraised-value limitation agreement. Projects should review any existing agreement before counting on the sales-tax exemption. The Comptroller discusses the former program in its 2025 Chapter 313 report.
The comparison to Chapter 313 is political and economic, not a claim that the programs are legally identical. Both raise questions about whether incentives attract enough investment and lasting employment to justify public revenue foregone, and who pays for associated infrastructure. That history helps explain why the newer data-center exemption is part of a broader debate about the costs and benefits of attracting capital-intensive projects.
JETI is not an automatic data-center incentive
Texas’s Jobs, Energy, Technology and Innovation Act (JETI) is a separate property-tax-limitation program. Under an agreement involving a company, school district, and Governor’s Office, eligible projects can receive a 10-year limitation on school-district maintenance-and-operations taxable value; the general limitation is 50%, with an additional 25% limitation in qualified Opportunity Zones. Thresholds depend on project category and county. The Governor’s Office lists eligible categories including manufacturing, dispatchable electric generation, natural-resource development, research, development or manufacturing of high-tech infrastructure equipment or technology, and construction or expansion of critical infrastructure. Its JETI guidance does not identify an ordinary data-center campus as a standalone category.
A data-center-related project might qualify through another statutory category or associated infrastructure, but that must be confirmed for the particular project with the relevant state offices. JETI is not automatically a replacement for Chapter 313 or a guaranteed data-center property-tax benefit.
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Local incentives are a separate negotiation
Cities, counties, school districts, and other local entities may consider property-tax abatements, Chapter 381 county agreements, Chapter 382 municipal agreements, infrastructure participation, development-fee arrangements, or economic-development corporation incentives. Availability and terms vary by jurisdiction; no local benefit is guaranteed by state data-center certification. Check the actual agreements and approvals with the relevant local governments, school district, appraisal district, and utility. The Comptroller’s overview of property-tax incentive programs describes the broader local context.
How to assess a project while policy is unsettled
Developers should verify facility size, five-year investment timing, qualifying job definitions, occupant and sublease structure, purchase-level eligibility, local tax exposure, and the date certification would begin the benefit. For the large-project exemption, confirm the 20 MW transmission-capacity contract requirement. Review any Chapter 313 agreement, and do not assume JETI or local property-tax relief applies without project-specific confirmation.
Investors and site selectors should model at least three cases: current law remains available; future projects face changes but certified projects are grandfathered; or the incentive is narrowed, shortened, conditioned, or repealed. In each case, show state sales-tax savings separately from local sales-tax savings, local property-tax incentives, utility and transmission costs, water and cooling costs, and compliance costs. The statutory term is not a promise of a particular dollar saving: the result depends on qualifying purchases, certification timing, and whether the project meets its milestones.
For residents and local officials, the key test is broader than the amount of tax forgone. Ask whether the project bears incremental grid costs, adds reliable generation or capacity, uses water efficiently, creates durable qualifying jobs, and produces enough long-term local tax base to justify public support after the exemption ends. Also weigh effects on reliability, water availability, noise, and other local services. Abbott’s stated agenda puts those cost-allocation questions at the center of the debate.
What to watch next
Until a bill is enacted, the current statutory exemptions remain the operative rules for projects that meet their requirements. Watch for legislation that defines which incentives are repealed or revised, whether existing certifications are protected, when any change takes effect, and whether new conditions apply to power, water, reporting, or local impacts. For a project not yet certified, treat those transition questions as material financial and schedule risks rather than assuming either permanent benefits or certain repeal.
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