Back in April I wrote you about Patrick's $3.3 billion question, the Senate Finance interim charge directing the committee to study the cost of the data center sales tax exemption.

On Monday the committee asked it.

I attended all five and a half hours. Here's what happened, and what it means if you develop, operate, or advise on data centers in Texas.

The Chair Opened by Telling You Where This Is Going

Chairwoman Joan Huffman didn't bury the lede.

"I have publicly committed to filing legislation on this issue during the next legislative session."

She also said she voted for the original exemption in 2013, and that most of the Legislature did too.

"But the information we were given, which you'll hear about today, has completely changed. So what we thought we were voting for back in 2013 is a much different animal these days."

Then she set the boundary for the whole conversation: "No tax exemption should operate on autopilot. Pursuing smart reforms does not mean being unfriendly to business."

She voted for this exemption. She's now writing the bill that changes it. That framing held for all five and a half hours.

The Numbers the Comptroller Put on the Record

Brad Reynolds, Chief Revenue Estimator at the Comptroller of Public Accounts, walked the committee through the program page by page.

From 2014 through 2020, cumulatively, 10 data centers held certifications. Then 2021 added 7. 2022 added 16. 2023 added 10. 2024 added 13. 2025 added 23.

This fiscal year to date: 59 more, with 5 applications pending.

Running total, 138 certified.

The Comptroller's last published estimate assumed 12 new certifications over a six-year period. 59 have arrived already in this year alone.

They're also getting bigger. The newer certifications increasingly take the 20-year large-facility exemption rather than the 10- or 15-year smaller facility exemption.

Reynolds was direct about what that does to the $3.3 billion figure. He can't publish a new number yet. The next exemption study gets written in August, reviewed in the fall, and a new Comptroller has to approve it. Asked whether the number goes up, he said it's "reasonable to expect significantly higher numbers."

The Compliance Data Is Better News Than the Headline Suggests

The Comptroller's audit division has started compliance audits on the data centers that have passed their five-year mark. Twenty audits are complete or in process. Six came back compliant on both capital investment and job creation. Six came back non-compliant. The other eight are still open.

One of the six non-compliant firms asked to have its certification reversed voluntarily, because ERCOT canceled its power contract and it couldn't build out to meet the capital commitment.

Of the rest, one missed the 100,000-square-foot threshold and the others missed the 20-job requirement.

Jenny Burleson, Director of Tax Policy at the Comptroller's office, explained why only 20 of 138 have been looked at. The statute gives a data center five years to establish jobs and capital investment, so the law doesn't authorize an audit until year five. The remaining 118 will come up as each one hits its five-year date.

Reynolds editorialized exactly once, on the projects that missed the jobs threshold, and it's the line most likely to end up in a headline: being unable to justify "employment of even 20 people on a permanent basis at one of these things tells you how little employment is really stemming from this." That's the Chief Revenue Estimator's characterization. It isn't an audit finding.

On the other hand, for the nine facilities where capital investment verification is complete, the required aggregate commitment was $2.7 billion. Verified actual investment came in above $9.1 billion, 3.4 times the statutory minimum.

The projects that qualify are investing far more than the statute asks of them.

The State Is Already Clawing Money Back

When a certificate holder is found non-compliant, the state assesses sales tax on every exemption claim it made during the certified period.

The facility that lost its power agreement and surrendered its certification is paying back almost $5.6 million, and the Comptroller expects that payment by August 31.

Because it came forward on its own, it entered the voluntary disclosure program and its penalty is waived. The ones caught through audit get penalty and interest like any other audit. Revocation carries up to a 5% penalty on top.

If a certificate holder went bankrupt, collections would run through the Attorney General's office, and these tax debts generally survive bankruptcy.

Members pushed hard on that scenario. Huffman: "I want to try to do everything we can to make certain taxpayers don't be left holding the bag." Expect security or bonding language in the filed bill.

The recapture process is running right now, and the first check is due in five weeks.

Four Things Most Coverage Gets Wrong

The exemption is narrower than the debate suggests. It covers the state's 6.25% sales tax on qualifying equipment. Property taxes, the dominant local revenue line, get paid every year. Franchise tax gets paid. Local sales tax gets paid too, with one carve-out: the large-facility tier under §151.3595, at 250,000 square feet and a 20-year term, is exempt from local sales tax as well.

Only single-user data centers qualify. Reynolds made this explicit. Co-location and multi-tenant facilities get no state sales tax exemption at all, and Texas has many more of those than single-user facilities.

Data centers can't get the school property tax agreements people assume they get. Reynolds confirmed they don't qualify for the former Chapter 313 agreements or for JETI.

Local sales tax on the equipment mostly doesn't stay local. Several members pushed on this. Local sales tax is generally sourced to the seller's location rather than the delivery address, so a rural host county typically doesn't capture it. Huffman asked directly whether anything in statute would prevent sourcing it to the delivery county instead. Expect a bill. It's the cleanest, most bipartisan fix in the whole hearing.

Watch the Electricity Piece

Reynolds testified that 38 other states offer some form of data center tax exemption. 36 of those are sales tax exemptions. Of those 36, only 14 include electricity.

Texas is in the minority by exempting electricity.

Now look at the Comptroller's own model. Electricity is the recurring line. Equipment purchases spike in the build years and again at refresh, but power gets billed every month forever, and the model assumes it's 100% taxable.

That makes electricity the single biggest change the Legislature can make short of repeal, and the easiest one to defend politically, because most states already do it.

Reynolds added a second important comparison. Peer states generally pair lower capital investment requirements with higher job creation requirements than Texas'. That's the likeliest template for how the thresholds get rewritten.

If you're modeling what a 2027 bill costs you, model those two first.

The Industry Panel

Dan Diorio, Executive Vice President of State Policy and Government Affairs at the Data Center Coalition, testified for the industry.

He brought the PricewaterhouseCoopers economic impact study: $65.8 billion contributed to Texas GDP in 2024, up 16% from 2023, more than 103,000 jobs supported directly and more than 428,000 including indirect and induced effects.

He also cited Virginia's Joint Legislative Audit and Review Commission finding that the exemption there returned $2.1 billion more than it cost, and that 90% of the investment wouldn't have happened without it.

Senator Hinojosa's response: "I don't think we have data on that. Certainly the Comptroller's office didn't have it. It'd be interesting to provide that and verify the information you're testifying to."

Industry numbers the state can't check independently will carry less weight from here forward.

The Warning Shot

Senator Lois Kolkhorst, speaking to the industry witness directly, expressed the legislature's frustration.

"Your coalition has done a horrible job on working with local communities and on marketing, and particularly working with neighboring property owners."

She continued: "That is something y'all have to fix, otherwise you're gonna get a fight in every community you go to."

She told him she's never seen this level of pushback against a single industry, including from people who normally back business.

Then she named the complaints her office actually receives, in order: water usage, electrical usage, and then, most importantly in her telling, noise pollution and light pollution.

She described asking an operator whether it could get below the 82-decibel limit the city imposed, down to 50, and being told it probably could. The industry should lead with wins like that.

What I'd Do This Week

Pull your compliance file. If you hold a certification, know your five-year date and know today whether you clear both the capital and the jobs threshold. The audits are running now.

Document net contribution, not the discount. The question that got traction in that room was what a project puts in against what it costs the community to serve it. Property tax paid, payroll into local trades, supplier purchases, grid investment. Have those numbers per site, verifiable.

Get ahead of noise and light. Both are cheap to solve at design stage and expensive to retrofit after a county turns against you. A senior Republican senator just named them from the dais.

Show your water numbers voluntarily. Reporting quickly and completely, before anyone compels you, is what separates the operators this committee trusts from the ones it doesn't.

Engage the study, not the outcome. The Comptroller writes the next exemption study in August. Reynolds said on the record that he's willing to talk with the Data Center Coalition or anyone else about the estimation model if they think it's unreasonable, and that his goal is "a fair representation."

The operators who show up in August with verifiable, site-level numbers will shape what the 2027 bill looks like.

The ones who wait will be reacting to a bill written by people who showed up.

I've posted the full hearing video and a cleaned transcript so you can check any of this yourself.

Watch the hearing.

Source documents:

Senate Finance hearing notice, July 27, 2026
Senate archive video
Tax Code §151.359 and §151.3595

12 in Six Years. 59 in One.