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Texas is projected to lose at least $1.3 billion in tax revenue from data centers this year. A state-wide exemption originally approved in 2013 allows large tech companies to build multi-billion dollar facilities without paying taxes on hardware, office equipment and massive amounts of electricity. While not an issue at its conception, maintaining this policy has permitted the genesis of the fastest-growing loss in revenue Texas has ever faced. 

Texas lawmakers approved an uncapped exemption for data centers in 2013, waiving the 6.25% sales tax for equipment and utilities, to compete with other states’ incentives in what was then a stable, slow-growing technology industry. At the time, building data centers meant housing servers for email storage and other basic functions. The barrier of entry was low, investment was minimal and a promise of introducing at least 20 jobs allowed for automatic exemption for the next decade and a half, with annual costs for the state peaking at $30 million before 2022. While then a reasonable decision, this exemption would be the mechanism that would allow Big Tech to put Texas in its current predicament.

After the 2022 artificial intelligence boom, companies leading this flourishing industry exploited this pre-existing legislation so poorly prepared for the effects of an AI-driven economy. Tech companies like Meta, Google and Amazon who see Texas as a goldmine of cheap land and electricity plan on dumping hundreds of billions in AI data center development. Previously modest infrastructure, data centers have rapidly become critical assets in a multitrillion-dollar arms race for their new purpose of training AI. This function, though vital, is heavily taxing, with Texas data centers in 2025 demanding eight gigawatts of electricity — enough energy to power over five million homes for one year. Facilities for such processes have immense corresponding expenses, and with the exemption in effect, Texas is losing out on far too much revenue. 

Additionally, that $1.3 billion projection is still just a projection, and unfortunately for Texas, projections like these have a history of being undervalued. From February 2023 to January 2025, the cost projection for the 2025 fiscal year was revised from $130 million to $1 billion. Considering the current prospects and evidence of AI growth, value, hardware, electricity and other resources it requires will only rise, worsening the loss Texas faces from this exemption. 

The most important aspect of over a billion dollars lost in taxes is its effect on the average Texan. It means they are losing the money that could pay 22,000 teachers, double the entire state fund for rural healthcare or simply remain as available capital, relieving the pressure of maintaining the state’s schools and roads from the shoulders of the taxpayer. 

Thankfully, state Sen. Joan Huffman and other public officials aim to add guardrails to this unrestricted expense in an upcoming interim hearing this July, discussing the unsustainability of these numbers to strongly revise or repeal the exemption.