Texas State Data Center Tax Incentives

Texas stands as a premier destination for data center development thanks to a robust suite of state tax incentives designed to attract large-scale digital infrastructure projects.

Recognizing Texas as an ideal location for data center development, Stream Data Centers operates data centers in the Dallas, Houston and San Antonio metro areas. Additionally, Stream Data Centers is expanding its footprint in Wilmer, located near Dallas, with the development of its Wilmer II Hyperscale Campus.

Overview of Texas Data Center Incentives

Texas offers a comprehensive set of incentives to attract and support data center development, making it a competitive destination for large-scale digital infrastructure projects. Under House Bill 1223, qualifying data centers can receive state sales and use tax exemptions on essential equipment and electricity.

The Texas Enterprise Fund (TEF) awards “deal-closing” grants to companies considering a new project for which one Texas site is competing with other out-of-state sites. The fund serves as a performance-based financial incentive for those companies whose projects would contribute significant capital investment and new employment opportunities to the state’s economy.

Additionally, under Chapter 312 of the Texas Tax Code, local governments can provide property tax abatements on new improvements for up to 10 years, encouraging capital investment and job creation. These abatements are negotiated locally and require the designation of a reinvestment zone, with terms tailored to the scale and nature of the project

Together, these incentives position Texas as a leading state for data center growth, offering financial advantages and a pro-business environment.

Key Incentives Available to Texas Data Center Developments

1. Sales and Use Tax Exemptions: Qualifying data centers can receive state sales and use tax exemptions on essential equipment and electricity.

State Requirements for Exemptions:

• Located in the state of Texas
• Specifically constructed or refurbished and used primarily to house servers and related equipment and support staff for the processing, storage and distribution of data
• Used by a single qualifying occupant for the processing, storage and distribution of data
• Not used primarily by a telecommunications provider to place tangible personal property that is used to deliver telecommunications services
• Has an uninterruptible power source, generator backup power, a sophisticated fire suppression and prevention system, and enhanced physical security that includes restricted access, video surveillance and electronic systems

Benefits

• 10-year exemption of state sales and use tax on tangible personal property for capital investment between $200-$250 million
• 15-year exemption of state sales and use tax for capital investment greater than $250 million

Qualifying Purchases

• Electricity*
• Electrical systems
• Cooling systems
• Emergency generators
• Hardware or a distributed mainframe computers or servers
• Data storage devices
• Network connectivity equipment
• Racks, cabinets and raised floor systems
• Peripheral components or systems
• Software
• Mechanical, electrical or plumbing systems that are necessary to operate any tangible personal property described above
• Any other item of equipment or system necessary to operate any tangible personal property described above, including a fixture; and a component part of any tangible personal property described above

*Electricity: A predominant use study will be required to differentiate between taxable and nontaxable use of electricity from a single meter, unless the qualifying data center is a stand-alone facility and the qualifying occupant is its sole inhabitant. For more information about predominant use studies, see Rule 3.295, Natural Gas and Electricity. The qualifying owner, qualifying operator or qualifying occupant of a stand-alone qualifying data center is not required to perform a study and can, in lieu of tax, supply its utility provider with a properly completed Form 01-929, Exemption Certificate for Qualifying Data Centers or Qualifying Large Data Center Projects (PDF).

2. Texas Enterprise Fund

The Texas Enterprise Fund is a “deal-closing” grant program designed to attract major projects to Texas when the state is competing with other locations.

Key Features:

• Cash grants awarded based on job creation, wages and capital investment
• Must create 75+ full-time jobs in urban areas or 25+ in rural areas
• Projects must be actively competing with out-of-state sites
• Requires local support (city, county, school district)
• Funds are disbursed after performance targets are met (job creation, wages)
• This fund is especially useful for large-scale data center projects that offer substantial employment and investment.

3. Property Tax Abatements (Chapter 312)

In Texas, under Tax Code Chapter 312, local governments (cities, counties, special districts) can offer property tax abatements to qualifying projects, including data centers.

Benefits:

• Reduces property taxes on new improvements for a set period
• Encourages capital investment and job creation

Why Texas is an Ideal State for Data Center Development

Texas ranks among the top states for data center capacity, offering:

• Central geographic location and vast land availability
• Energy affordability and diversity
• Dense fiber infrastructure
• Business-friendly environment, including no corporate income tax
• Skilled workforce and proximity to major markets
• Strong government support for tech and innovation sectors