Texas data center tax incentives could face major changes after Democrats flipped several U.S. congressional seats, swept the major Texas offices and won a majority in the state House. Sacha Haworth, CEO of The Tech Oversight Project, said technology and data centers were central in many midterm races. She expects incoming Democratic leaders to pursue more oversight of tech companies, which could include changes to data center development policy and taxes in the next legislative session.
Governor-elect Gina Hinojosa said in an Oct. 22 video posted to X that, as governor, she would issue a moratorium on data center approvals until the Legislature passes laws to protect Texans.
John Diamond, director of the Center for Tax and Budget Policy at Rice University's Baker Institute, said data centers receive two main tax breaks: local property tax incentives set by local governments and a state sales tax exemption. He said a Milam County project would have its property taxes fully abated for ten years, while the developer makes payments in lieu of taxes worth 25% of the property taxes, according to Diamond. A 2025 Texas Comptroller report estimated the state sales tax exemption would cost more than $1 billion in 2025, rising to about $1.75 billion a year by 2030. The Comptroller's Office later told lawmakers those figures were likely too low. Diamond said the incentives help attract investment, and his research estimates data center investment rose from about $3 billion in 2022 to over $66 billion in 2026.