Texas governor restricts data center grid access and forgoes $3.2 billion in sales tax revenue, tightening power allocation amid grid strain.

Texas is forgoing $3.2 billion in sales-tax revenue over the next two years as its data center buildout accelerates, with state officials warning the final figure could climb higher. Governor Greg Abbott is simultaneously tightening oversight of the sector, requiring proposed data center projects to undergo substantially more scrutiny before connecting to the state's electric grid.

The exemption allows eligible data centers to avoid Texas's 6.25% sales tax on electricity and purchases including servers, software, cooling systems, and generators. According to KFDM, at least $1.3 billion of the $3.2 billion revenue loss will be foregone over the next two years.

Abbott has ordered regulators to halt approvals of new ERCOT connections for proposed data centers until the Public Utility Commission of Texas and ERCOT complete a "comprehensive verification and audit." The directive does not constitute an outright ban but significantly complicates grid access for new projects. Under the new standards, developers must disclose any public subsidies, ownership structures, expected electricity consumption, water supply and recycling practices, and anticipated local impacts including noise, traffic, and lighting.

"I established clear guardrails to ensure data centers protect our electric grid, conserve our water, respect our neighborhoods, and pay their own way," Abbott said.

The tax exemption has expanded rapidly since lawmakers created it in 2013 and broadened it in 2015. By a July Senate Finance Committee hearing, audits had covered only 20 of the 138 qualified data centers, with six found out of compliance. Facilities failing audits must repay waived taxes. Large data centers must meet investment and job thresholds to qualify, though companies can receive tax breaks immediately and have five years to meet those commitments.

Data centers—particularly those supporting artificial intelligence—consume enormous quantities of electricity and water, with cascading effects on utility costs, local water supplies, and grid reliability. Abbott's spokesperson reported that fewer than 10% of data centers responded to state requests for power and water-use information, while ERCOT has documented peak electricity demand from the sector rising by more than 500%.

Texas currently operates 335 data centers with at least 248 others planned or under construction. Many are targeting unincorporated areas, where residents face fewer zoning protections.

OpenAI, Meta, Amazon, Google, QTS, Skybox, Digital Realty, and MARA have committed to following Abbott's new standards. Senate Finance Committee Chair Joan Huffman is considering legislation to revise or repeal the exemption when lawmakers reconvene in January. "The PUCT and ERCOT cannot make decisions to guarantee grid stability and reliability based on substantially incomplete information," Abbott said.

President Donald Trump countered that Texas opposition to data center expansion is "a mistake" because such facilities are "tremendously important for the economics."