Texas Bills Would End $3.3 Billion Data Center Tax Break

A Texas Senate bill would repeal the state's data center sales tax exemption, a break the comptroller estimates will cost about $3.3 billion in forgone revenue over the next two-year budget. Sen. Joan Huffman, a Houston Republican, filed SB 293 on Monday, the first day of bill filing for the 2027 session. By 5 p.m., lawmakers had filed more than 1,260 bills.

The mathematics of the upper chamber favor repeal. Community Impact counted 23 of the 31 senators and senators-elect as joint authors of SB 293, a clear majority before a single hearing has been held. Lawmakers from both parties filed similar repeal bills.

The bill targets Tax Code sections 151.359 and 151.3595, which exempt data centers from sales and use taxes. It would end existing exemptions on its effective date and deny applications still pending with the comptroller. The fiscal trajectory explains the urgency. The exemption cost $14.6 million in its first biennium after 2013. The current estimate is roughly 225 times that figure.

Huffman put the argument in one sentence. "Texas should welcome investment. It should not write a blank check," she said.

What else did the Legislature file?

Sen. Judith Zaffirini, a Laredo Democrat, filed a package of five data center bills alongside the repeal effort:

• SB 32 — require developers to obtain a Public Utility Commission permit before construction begins.
• SB 33 — require that data centers not raise electricity costs for Texas residents.
• SB 34 — change counties' authority to regulate data center development.
• SB 35 — require large data centers to report water use to the Texas Water Development Board.
• SB 36 — bar new local tax incentives and stop cities and counties from renewing existing ones.

Read together, the package treats data centers as a regulated utility-adjacent industry rather than a favored recruit. Power, water and tax treatment all come under new oversight.

Why is the political picture different now?

The 2027 session convenes with divided government in Austin. Democrats will control the Texas House, Republicans keep the Senate, and Democrats won the governor's office and every other statewide race. Bill filing opened Monday and closes March 12; the session convenes Jan. 12.

The executive branch has already moved. Outgoing Gov. Greg Abbott halted new data center grid connections on Aug. 3 and ordered an audit due at the end of the year. Gov.-elect Gina Hinojosa campaigned on blocking data center approvals until the Legislature passes laws "to protect Texans."

Operators are already negotiating the terms of that freeze. CoreWeave asked Hinojosa to let permitted projects finish, after she pledged to freeze approvals. The request is a preview of the lobbying war ahead: companies with approved projects will argue sunk costs, while lawmakers debate what counts as approved.

What happens next?

For semiconductor and compute infrastructure watchers, the Texas fight matters beyond one state. The exemption was a cornerstone of Texas's pitch to hyperscalers and GPU cloud operators; a repeal backed by 23 senators signals that the era of blank-check incentives for compute capacity is drawing scrutiny even in business-friendly states.

The session calendar sets the pace. Bills filed between now and March 12 will move through committees under split control, and the comptroller's $3.3 billion estimate gives repeal advocates a number that is difficult to argue away. If SB 293 passes with its current co-authors intact, data center operators in Texas will face the same sales tax regime as everyone else — and other states watching the Texas model will have to decide whether to compete for the displaced capacity or follow suit.