Abbott urges Texas to end data center tax break and tighten rules

In short: Texas Gov. Greg Abbott is asking lawmakers to remove a sales tax break for data centers and add new rules for how they use power and water.

What happened

Gov. Greg Abbott is pushing the Texas Legislature to tighten regulation of data centers and repeal a state sales tax exemption that benefits them. Data centers are large buildings filled with computers that store and process data, like giant warehouses for the internet.

Abbott says these facilities should pay more of the costs they create, instead of those costs being shifted to other electricity customers. His recommendations include making new data centers add new power generation to the electric grid, pay their own costs to connect to the grid, and cover related infrastructure expenses.

He also wants new requirements around water. Abbott is calling for closed-loop water systems, which reuse the same water again and again (like a recirculating fountain). He is also urging annual reporting of electricity and water use, plus standards meant to reduce local impacts such as noise.

The financial focus is the sales tax exemption. The Texas Comptroller’s figures cited in reporting project the exemption will cost the state $3.2 billion over the next two years, including about $1 billion in fiscal 2025 alone. State Sen. Joan Huffman, a Republican, has said she is weighing legislation to repeal or sharply review the exemption, calling the revenue losses “unsustainable.”

Why it matters

This debate has become especially sensitive in rural and Republican-leaning parts of Texas, where residents and local officials have complained about water use, noise, land use, and strain on roads and utilities. If the rules change, it could affect where data centers get built, how much they pay to operate, and how much local communities and other ratepayers end up covering.

Source: NYTimes