Texas Data Center Policy
- Cahil Murchison
- Apr 28
- 5 min read
Updated: Apr 30
Data centers are all the rage these days in rural Texas. In fact, sometimes they're causing actual rage. But it seems their existence in Texas is inevitable at this point. So, what are Texas lawmakers doing about them? Heck, what is data center? Let's take a look.
What is a data center?
This Forbes article goes into detail on what a data center is: "Data centers are defined as physical places that house and run networking components and infrastructure, including servers, firewalls, switches, routers and storage systems, and all the electrical utilities associated with these parts. These resources enable an organization to power computing needs and business applications."
In short, they are giant warehouses that store the computers which contain data, memory, and IT infrastructure.
Why are they necessary?
Data centers are basically what keep modern businesses running. They power everyday tools, store huge amounts of information, and help keep that data safe from threats. They’re also the backbone of today’s digital world, letting companies easily scale up or down without huge upfront costs by using cloud or third-party services. Without a data center, a company wouldn’t have a reliable place to run its software, store its data, or keep things secure.
Why the sudden demand for data centers?
As the American Farm Bureau explains in this April 2026 article, "Demand for data centers – large, secure facilities that house computers and servers used to store, process and manage vast amounts of digital data – is accelerating as cloud computing, artificial intelligence and other digital services expand across the United States... Growing electricity demand from data centers, electrification and digital infrastructure is adding pressure to an already aging grid. The Department of Energy estimates data centers used about 4.4% of U.S. electricity in 2023, a share projected to rise to between 6.7% and 12% by 2028."
Texas Policy on Data Centers
Current Data Center Laws
There are currently zero statutes in Texas specifically regulating data centers, their use, and their construction. Zero. As I'll discuss later in this newsletter, that will likely change in the next 13 months.
However, when it comes to navigating certain local ordinances and other real estate laws, contact a land-use attorney to help navigate best practices.
I also highly encourage everyone to listen to Tiffany Lashmet's discussion with attorney Chris Nichols regarding all things land owners and data centers.
Proposed Data Center Bills in 89th Legislative Session
HB 4908 (Rep. Rodriguez Ramos) - Relating to the establishment of the Texas prosperity payout fund; imposing taxes on the gross revenues of and consumption by certain industry participants; authorizing administrative penalties.
HB 4908 created a tax on data centers' gross revenue each month at a rate of 4%. The tax does not apply to data centers that use less than five megawatt-hours of electricity in that month.
This bill was referred to the House Committee on Ways & Means. It never received a hearing.
SB 2888 (Sen. Cook) - Relating to the temporary sales and use tax exemptions for certain tangible personal property related to data centers and large data center projects.
Texas Tax Code § 151.359 creates a temporary sales and use tax exemption for certain items used in qualifying data centers.
SB 2888 would have added requirements of data centers to receive this tax exemption. On top of their current requirements, data centers would need to use a liquid cooling system instead of an air-cooling system; use a row- or rack-based air cooling system instead of a room-based air cooling system; and use Energy Star-certified servers.
SB 2888 was referred to the Senate Committee on Finance. It never received a hearing.
SB 2222 and SJR 72 (Sen. Parker) - Relating to an exemption from ad valorem taxation of the total appraised value of real property used as a data center and the tangible personal property used by the data center to meet the data center's demand for energy.
SB 2222 creates a property tax exemption for data centers and the land it sits on.
A qualifying data center under SB 2222 would be a facility of at least 100,000 square feet, purpose-built to house servers and related equipment for processing, storing, and distributing data, rather than serving as a telecommunications site. It would include robust infrastructure like uninterruptible power systems, on-site backup generators, advanced fire suppression, and strong physical security measures such as restricted access and surveillance. To meet the “qualified data center” standard, it must be capable of meeting all its energy needs with its own power systems and have a contract to provide energy or ancillary services to the ERCOT grid or another power grid.
If it meets those thresholds, the building, land, and on-site energy equipment can qualify for a full property tax exemption on their appraised value.
SB 2222 was referred to the Senate Committee on Local Government. It did not receive a hearing.
What's on the horizon?
While many folks are flat out against the construction of data centers, data centers are here, whether we like it or not. Republican nominee for Texas Agriculture Commissioner Nate Sheets understands as much. He posted on Facebook regarding data centers: "When it comes to this issue, there’s a lot of clickbait and hyperbole out there. I’m focused on facts and real solutions. We don’t have to choose between innovation and agriculture - we can do both, if we do it right."
Texas Farm Bureau President Russell Boening (pronounced bane-ing) penned a letter to Lt. Gov. Dan Patrick and Speaker of the House Dustin Burrows, expressing Texas Farm Bureau's concern over data centers and the stress data centers put on "critical natural resources, especially water and electricity, in rural regions already facing groundwater depletion, limited surface water supplies, and recurring drought." At the same time, President Boening reassured that Texas Farm Bureau "recognizes and supports responsible economic development that strengthens the state’s economy, creates jobs, and enhances Texas’ reputation as a national leader in innovation and technology."
On a personal note, every time I check my LinkedIn, I see an overwhelming number of government relations jobs for data center related companies. There are going to be plenty more pro-data center lobbyists walking the halls in Austin during the 90th Texas Legislative Session. That's for sure. So, we can expect plenty more bills regarding data centers in the 90th #txlege.
If you haven't noticed it already, there is going to be a fine-line that policy makers must toe between the pro-data center, pro-development industry and the agriculture industry. Sheets and Boening seem to represent the most likely dynamic that will form: a blend of policies that supports the necessity and inevitableness of both data centers and agriculture in Texas. Nobody knows what that will look like regarding the actual policies (land-use regulations, tax policies (as seen above), and funding opportunities), but pre-filing bills starts in less than a year.
If I was a gambling man, I'd expect some low bill numbers regarding data centers.
Too cool not to share: The Chinese have already started funding a massive project to build a data center in space as a satellite. The "constellation" would use "near-continuous solar power and the passive cooling of the space thermal environment, theoretically enabling data center workloads at a scale impractical on the ground, though significant challenges such as thermal management remain."
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