Overview
Texas courts data centers with significant tax incentives while imposing new grid reliability safeguards. The state offers a 10-15 year sales tax exemption and local property tax abatements for qualifying facilities. At the same time, 2025 legislation (SB 6) requires large loads above 75 MW to install remote disconnect equipment, participate in demand management programs, and obtain regulatory approval for certain co-location arrangements with existing generators.
Incentives
State Sales and Use Tax Exemption for Qualified Data Centers
Texas exempts qualifying data centers from the 6.25% state sales and use tax on equipment and tangible personal property necessary to operations.[1]
- The facility must be at least 100,000 square feet in a single building or portion, dedicated to housing servers and related equipment for a single qualifying occupant.[1]
- The project must create at least 20 qualifying jobs in the county and invest a minimum $200 million over five years after certification.[1]
- The exemption lasts 10 years for investments of $200–$250 million and 15 years for investments of $250 million or more.[1]
- Local sales and use taxes remain due; only the state portion is exempted.[1]
- A data center cannot claim this exemption if it is already subject to a Chapter 313 appraised value limitation agreement.[1]
- If the Comptroller revokes the registration number for noncompliance, the claimant becomes liable for back taxes, penalties, and interest.[1]
Local Property Tax Abatements (Chapter 312)
Cities, counties, and special districts may enter tax abatement agreements that exempt the increased value of property from taxation for up to 10 years.[2]
- School districts cannot enter abatement agreements under Chapter 312.[2]
- These local-option incentives can be paired with the state sales tax exemption if eligibility rules allow.
JETI School District Value Limitation
The Jobs, Energy, Technology and Innovation Act (JETI) allows companies, school districts, and the Governor to sign a 10-year school district appraised value limitation agreement for maintenance and operations taxes.[3]
- Eligibility requires meeting job and investment minimums and obtaining a “compelling factor” determination from the Comptroller.[3]
- Eligible activities are defined by NAICS codes; confirm whether NAICS 518210 (data centers) qualifies before relying on this program.[3]
Requirements and Conditions
Large-Load Interconnection Standards
SB 6 (enacted 2025) directs the Public Utility Commission of Texas (PUCT) to adopt interconnection standards for large load customers in ERCOT.[4]
- The standards apply to loads above a demand threshold set by the PUCT, which defaults to 75 MW unless the commission adopts a lower threshold.[4]
- Required disclosures include duplicate interconnection requests and information about on-site backup generation.[4]
- Large loads must pay a minimum $100,000 transmission screening fee and meet financial commitment standards (such as security posted per MW or advance payments) before transmission buildout proceeds.[4]
Remote Disconnect and Demand Management
For transmission-voltage large loads interconnected after December 31, 2025, utilities must install remote-disconnect equipment to enable firm load shedding, with statutory carve-outs for critical loads.[4]
- ERCOT may direct a utility to require a large load to deploy on-site backup generation or curtail load during energy emergency alerts, while preserving environmental compliance.[4]
- SB 6 also establishes a large-load demand management service that procures demand reductions from large loads ahead of energy emergency alerts and can require 24-hour notice and sustained curtailment during the event.[4]
Co-Location Approval for Net-Metering Arrangements
New net-metering arrangements between an existing generation facility and a new large load must be noticed to the PUCT and ERCOT when the retail customer’s demand would exceed 50% of the generator’s nameplate capacity and no equivalent replacement capacity is proposed.[4]
- The PUCT must approve, deny, or impose conditions to protect reliability, including load ramp-down requirements, returning generation to ERCOT markets, and liability for stranded transmission assets.[4]
Utility and Grid Rules
Texas regulates large data center loads through the PUCT and ERCOT. SB 6 requires the PUCT to adopt detailed rules for interconnection, financial commitments, and curtailment procedures in 2026. These rules will shape the economics and operational flexibility of large data centers in ERCOT territory.
What to Watch
- PUCT rulemakings implementing SB 6 will set the final demand threshold, financial commitment terms, and curtailment procedures for large loads in 2026.[4][5]
- Clarification of NAICS code eligibility for the JETI program to confirm whether data centers qualify for school district value limitation agreements.[3]
Sources
[1] Texas Tax Code, “Section 151.359 — Property Used in Certain Data Centers; Temporary Exemption,” Texas Public Law (statutory text), https://texas.public.law/statutes/tex._tax_code_section_151.359 (accessed January 10, 2026).
[2] Texas Comptroller of Public Accounts, “Property Tax Abatement Act (Chapter 312) — Overview,” https://comptroller.texas.gov/economy/development/prop-tax/ch312/ (accessed January 10, 2026).
[3] Texas Comptroller of Public Accounts, “Jobs, Energy, Technology and Innovation Act (JETI),” https://comptroller.texas.gov/economy/development/prop-tax/jeti/ (accessed January 10, 2026).
[4] Texas Legislature, “S.B. 6 (89R) — Bill Text (as enacted),” PDF, https://capitol.texas.gov/tlodocs/89R/billtext/pdf/SB00006I.pdf (accessed January 10, 2026).
[5] Texas Legislature, “S.B. 6 (89R) — Bill History,” showing effective date June 20, 2025, https://capitol.texas.gov/BillLookup/History.aspx?LegSess=89R&Bill=SB6 (accessed January 10, 2026).