Texas Data Center Sales Tax Exemption: Two Programmes, One Occupant, and a Clawback to the Purchase Date

Texas runs two data center sales tax exemptions — 100,000 sq ft with $200M and 20 jobs, and 250,000 sq ft with $500M and 40 jobs. What they cover, why only the state's 6.25 percent is exempt, the single-occupant rule that rules out colocation, and what decertification costs.

Texas's data center exemption is the one most often described loosely in an offering, because there are two separate programmes with different thresholds and different lengths — and because the thing an investor most wants to assume about it is not true: it exempts the state's 6.25 percent sales tax and nothing else. Local sales and use tax is still due.

This page sets out both programmes from the Comptroller's own published rules, and then the three conditions that decide whether a particular project can use either one.

The two programmes side by side

Source: the Comptroller of Public Accounts, State Sales Tax Exemption for Qualifying Data Centers and Qualifying Large Data Center Projects, and its frequently asked questions. Both clocks run "from certification date", not from the date the building opens.

Put that beside the two states we have already worked through and the pattern in state data center policy is hard to miss:

Texas has the highest investment floor of the three and the lowest job count. It is also the only one of the three with no published expiry date on the programme itself — which moves the risk from "will the legislature renew this" to "does our certification clock still have years to run".

Why "exempt in Texas" costs more than it sounds

For the qualifying data center programme the Comptroller is explicit. Qualifying items "are temporarily exempt from the 6.25 percent state sales and use tax", and separately: "Local sales and use taxes are due on purchases of these qualifying items." Under Claiming the Exemption on Qualifying Purchases it states that the exemption "applies only to the 6.25 percent state sales tax" and that "[t]he retailer must collect the applicable local sales and use tax" — and it says the same thing again in the large data center project section.

That is the opposite of Virginia, where the exemption reaches the whole retail sales and use tax, which that state's own auditors describe as "a 4.3 percent state share, a 1 percent local option share, and additional 0.7 percent to 1.7 percent regional share, depending on the region" (worked through here). In Virginia the local money is exempt; in Texas it is not.

So an identical equipment order gets a materially different answer in the two states, and a model that carries one number labelled "sales tax exemption" across a multi-state pipeline is wrong in at least one of them.

One sentence does sit awkwardly with the rest: under the large project's Local Sales or Use Tax heading the page reads "Sales and use tax is exempt for qualifying purchases for a Qualifying Large Data Center Project", immediately before telling the purchaser it is responsible for "paying any local use taxes that may be due on purchases of nonqualifying items". Read with the two explicit statements above it, the safe reading is that the state share is what is exempt. It is also exactly the kind of sentence to get answered in writing rather than assumed, because at $500 million of equipment the local share is a real number.

The single-occupant rule, which quietly rules out the usual pitch

This is the condition most likely to collide with how a private data center deal is actually marketed. The Comptroller's FAQ states it plainly: "Each qualified data center may only have one occupant." The main page adds that a qualifying data center "may not sublease any portion of the real or personal property" within it, and that a large data center project requires "a single qualifying occupant, who may not sublease any portion" of the property.

A colocation or multi-tenant leasing model — several customers in one hall, each taking a few hundred kilowatts — is not what this exemption is built for.

There is one way through, and it is narrower than it first looks: the FAQ allows more than one qualifying data center in a single building, provided each uses at least 100,000 square feet and meets every certification requirement separately. So a two-tenant building is possible — if each tenant occupies 100,000 square feet, invests $200 million and creates 20 qualifying jobs of its own. That is not a workaround for a small deal; it is the same threshold charged twice.

Compare Virginia once more, where the statute goes the other way and lets the operator and its tenants qualify collectively. The sentence "our tenants benefit from the state exemption" can be literally true in Virginia and structurally impossible in Texas. See what a hyperscaler lease contains for who captures the benefit once you know who buys the equipment.

What a "qualifying job" is, exactly

The count is the easy part; the definition is where projections fail. A qualifying job is a full-time, permanent job that:

• pays "at least 120 percent of the county average weekly wage in the county in which the job is based",
• provides "at least 1,820 hours of employment a year to a single employee", and
• "will be filled continually for at least five years from the date the first employee starts work".

Once the jobs exist, the parties file Form 01-160, and "[t]he Comptroller will verify the job information annually" until each job's five years are up (FAQ, same source).

What counts toward the $200 million — and what is quietly excluded

The Comptroller counts amounts paid for capital or fixed assets used in operating the data center that qualify as Section 179, 1245 or 1250 property; land, buildings, furniture, machinery and equipment are given as examples.

Three exclusions matter more than the inclusions:

• property purchased before 1 September 2013;
• property leased under an operating lease; and
• purchases from related parties, and routine maintenance.

The operating-lease exclusion is the one to check against the structure. A sponsor that leases its servers, its generators or its cooling plant rather than buying them is not building the threshold with that spend — and equipment leasing is a common way to make an early-year cash flow look better. The two choices pull against each other, and only one of them can be in the model.

The Chapter 313 point is similarly structural: the Comptroller's page excludes a data center that has certain appraised-value limitation agreements under Tax Code Chapter 313. The sales tax exemption and that property-tax treatment are not stackable, so a projection assuming both state incentives at once is assuming something the administering agency rules out.

The clawback reaches back to the purchase date

Of the three states we have examined, Texas has the bluntest failure mechanism. If a certified data center does not meet its obligations, the Comptroller "will terminate the data center's certification" and revoke the registration numbers — and "[e]ach person who has his or her registration number revoked is liable for the state sales or use tax" together with "penalty and interest from the date of purchase".

Not from the date of the failure. From the date of the purchase, years earlier.

Set the three designs next to each other, because they tell you what each state expects to happen:

• Georgia: the Department of Revenue may require a bond — a precaution.
• Virginia: a mandatory memorandum of understanding with the state setting out "the repayment obligations should those goals not be achieved" — a negotiated schedule.
• Texas: revocation, plus the tax, plus penalty and interest running from each purchase — automatic and retrospective.

The question for a sponsor is the same in all three and is rarely volunteered: who bears a clawback — the issuer, the sponsor, or the investors? It belongs in the subscription documents, not in a conversation. The full list is in questions to ask a sponsor.

The 2025 bill that would have made liquid cooling a condition

This is worth knowing even though it is not law, because it shows where these programmes are drifting.

Texas SB 2888 (89th Legislature, 2025) would have added a third certification requirement to both programmes. The bill's new subdivision reads that the data center "includes the following energy conservation and efficiency measures:" — and then lists, joined by and:

• "(A) use of a liquid cooling system instead of an air cooling system;"
• "(B) use of a row- or rack-based air cooling system instead of a room-based air cooling system; and"
• "(C) use of Energy Star-certified servers."

It would have applied "only to the certification of a data center as a qualifying data center … on or after September 1, 2026" (bill text).

It did not pass. The bill's last recorded action is "04/07/2025 S Referred to Finance", with its committee status shown as in committee (bill history).

Read it as a direction of travel rather than a rule. A cooling architecture that is an engineering decision today was one committee vote away from being a condition of a multi-year tax exemption — which is a different kind of obsolescence risk than the one usually discussed. We treat that question on its own page: liquid cooling and what it means for your money.

Six checks on a Texas project

1. Which programme? 100,000 sq ft / $200M / 20 jobs, or 250,000 sq ft / $500M / 40 jobs. They are not interchangeable and the exemption runs 10, 15 or 20 years accordingly.
2. Has the Comptroller certified it, and when did the clock start? The term runs from the certification date. Applied for, certified and still-in-the-five-year-investment-period are three different states.
3. Does the model exempt local sales tax? It should not. Only the 6.25 percent state share is exempt, and the retailer must still collect the local tax.
4. Is there one occupant, and does the lease forbid subleasing? If the plan is multi-tenant colocation, ask how the exemption survives it.
5. How much of the $200 million is leased equipment or related-party purchases? Those do not count toward the threshold.
6. Who bears the clawback — tax plus penalty and interest from the date of purchase — if the investment or the five-year jobs test is missed?

Next: Virginia's exemption, where the thresholds are lower and the local share is exempt too; Georgia's, where the floor is $25 million in most of the state; and data center tax incentives for how these programmes are built in general.

For the developer's side of using an exemption like this in siting and fiscal structuring, the free vendor-neutral reference is *The Definitive Guide to AI Data Centers*, chapter 3.10. They cover how it is built; we cover whether to put money into it.

Nothing here is investment advice, and nothing here is tax advice. See how this site is funded.