In short
Texas does not have a single, statewide property tax exemption for AI data centers. No law automatically reduces the property tax bill on a new project. Instead, a developer must negotiate relief directly with local taxing units such as cities, counties, and special districts. Two local tools do most of the work. First, a Chapter 312 tax abatement can cut the tax on new improvements for up to 10 years. Tex. Tax Code § 312.204, Tex. Tax Code § 312.402, Tex. Tax Code § 312.206, Tex. Tax Code § 312.402 Second, a Chapter 380 or 381 economic development grant can provide a grant of public money that may offset a portion of the property taxes the project pays. Tex. Loc. Gov’t Code Chs. 380 381, Tex. Att’y Gen. Op. No. KP-0261, Tex. Loc. Gov’t Code Ch. 380, Tex. Loc. Gov’t Code § 381.004 These two can be stacked on the same project.
One large gap remains. School district taxes, which are the biggest piece of a typical Texas property tax bill, cannot be abated under current law. The old Chapter 313 program that once allowed school district value limits expired at the end of 2022. Texas Comptroller Chapter 313 report Its replacement, the JETI Act, does not cover data centers. 34 Tex. Admin. Code § 9.5000
Separately, Texas offers a rich state sales tax exemption on equipment and electricity for large data centers. That exemption is a sales tax benefit, not a property tax one. But it matters for property tax planning because a project that claims the sales tax break is barred from using the school district tax breaks under the old Chapter 313. 34 Tex. Admin. Code § 3.335, Texas Comptroller, State Sales Tax Exemption for Qualified Data Centers It does not block a local Chapter 312 abatement or a Chapter 380 grant.
How do property taxes work in Texas for an AI data center?
Texas has no state level property tax. All property tax is collected by local taxing units. These units include cities, counties, school districts, junior college districts, hospital districts, and other special districts. Texas Comptroller, Texas Comptroller Each unit sets its own tax rate every year. The county appraisal district determines the taxable value of all property. The owner pays a single bill that is the sum of all these local taxes.
For an AI data center, the taxable property covers land, buildings, and a long list of tangible personal property. Servers, generators, cooling systems, and network equipment all count. As of the end of 2024, Texas AI data centers held an estimated $49 billion in real property and $98 billion in tangible personal property. Mangum Economics study Without relief, that creates a large annual tax bill.
No single Texas statute says that an AI data center gets a property tax break just because it is a data center. Law firm analysis Every dollar of local relief must be won through a negotiated agreement with the local governments that collect the tax.
A developer must therefore understand three things. Which local tools exist. How they work together. And where the permanent gaps are. The flowchart below gives the big picture.
What is a Chapter 312 property tax abatement and how does it work?
A tax abatement is a temporary cut in the taxes owed on new construction or improvements. Under Chapter 312, a city, county, or special district can agree to exempt part of the value added by a new project. Tex. Comptroller Chapter 312 Overview The original land value still pays full tax. Only the new value above that base gets the cut.
The reinvestment zone comes first
Before a local government can offer any abatement, it must create a reinvestment zone. After a public hearing, the governing body designates the zone, finding the improvements feasible and practical, that they would benefit the land and municipality after the agreement ends, and that the area meets criteria like being reasonably likely to contribute to the retention or expansion of primary employment or to attract major investment. Tex. Tax Code § 312.201, Tex. Tax Code § 312.202 The zone lasts five years and can be renewed for additional five year periods. Texas Comptroller FAQ, Tex. Tax Code § 312.203 A developer usually asks the city or county to designate the project site as a reinvestment zone before any deal is struck.
The abatement agreement
Once the zone exists, the taxing unit can negotiate a written agreement with the property owner. Tex. Tax Code § 312.204 The agreement sets how much of the new value is exempt and for how long. The maximum term is 10 years. The exemption can go as high as 100 percent of the new value, meaning the owner pays no extra tax on the improvements for the whole period. Texas Comptroller FAQ
There is an important rule. All agreements in the same reinvestment zone must have identical terms for the portion of the value that is exempt and the duration of the exemption. Tex. Tax Code § 312.204(b) If a city wants to offer an AI data center a 10 year, 80 percent abatement, it must be ready to offer the same deal to any other qualifying project in that zone.
School districts are statutorily barred from granting Chapter 312 abatements. The statutory bar took effect on September 1, 2001. Texas Comptroller FAQ So a Chapter 312 deal can reduce city, county, and some special district taxes. It never touches school taxes.
Annual reporting and compliance
The owner must apply for the exemption with the appraisal district each year, using Form 50-116. The chief appraiser reports to the Comptroller before July 1 of the year following a reinvestment zone’s designation or an abatement agreement’s execution. TTARA presentation, Tex. Tax Code § 312.205, Texas Tax Code §312.005, Texas Tax Code §312.005 If the owner fails to meet the promised investment or job targets, the agreement can be clawed back. Each taxing unit also must adopt abatement guidelines by resolution. Those guidelines are effective for two years and can be changed only by a three quarters vote. Tex. Tax Code § 312.002
What are Chapter 380 and 381 economic development agreements?
A city or county can make a simple grant for economic development. Chapter 380 covers cities. Chapter 381 covers counties. Under these chapters, a municipality or county may provide a grant or loan of public funds to promote business activity. Dallas City Council Resolution No. 19-1316, Texas Comptroller Economic Development Programs, Tex. Loc. Gov’t Code § 381.004
In practice, these grants are often structured as a recurring payment equal to a percentage of the property taxes the project pays. Suppose a city agrees to pay the project 50 percent of the city property taxes collected each year for 15 years. The project writes a full check for its taxes, and the city writes a grant check back. Legally, it is a grant. Economically, it is a property tax rebate. It is not an abatement, so it avoids some of the procedural requirements of Chapter 312.
Any Chapter 380 or 381 agreement entered into, amended, or renewed after Jan. 1, 2022 must be reported to the Comptroller within 14 days. Failure to comply could result in a $1,000 penalty. Tex. Loc. Gov’t Code §§ 380.004, 381.005, Tex. Gov’t Code § 403.0247, Comptroller guidance
Because these grants are not abatements, they can be combined with a Chapter 312 abatement from the same government. The Meta project in El Paso, described below, used both a Chapter 380 grant and a Chapter 312 abatement. City of El Paso, El Paso Matters, Subsidy Tracker
What happened to the old Chapter 313 school district tax breaks?
School maintenance and operations taxes are the largest piece of the average Texas property tax bill, accounting for roughly 42 percent of the total. TTARA presentation For years, a program under Tax Code Chapter 313 allowed school districts to cap the taxable value of large industrial projects. AI data centers could qualify if primarily used in connection with manufacturing or other eligible activities. Tex. Tax Code § 313.024
Chapter 313 expired on December 31, 2022. No new agreements can be made. Existing agreements continue until they expire, but a project breaking ground today gets nothing from Chapter 313.
In 2023, the Legislature passed the JETI Act (Jobs, Energy, Technology, and Innovation Act), effective January 1, 2024. JETI provides a 10 year limit on school district M&O tax value, generally at 50 percent of market value, with 100 percent limitation during construction. Comptroller Fiscal Notes But JETI is limited to specific NAICS codes for manufacturing, dispatchable electric generation, natural resource development, high tech research or equipment manufacturing, and critical infrastructure. Data centers are expressly excluded. Tax alert So for an AI data center, school district property tax relief is not available under either the old program or the new one.
There is an added restriction. A data center that receives the state sales tax exemption under § 151.359 or § 151.3595 cannot also receive a Chapter 313 value limitation. 34 Tex. Admin. Code § 3.335 That bar was designed to prevent double dipping. Today it matters only for the few centers still operating under an old Chapter 313 deal. It does not impede the local Chapter 312 and 380 tools.
School district taxes remain a permanent cost. Developers and lenders should build the full, unabated school tax rate into their pro forma models.
How does the state sales tax exemption interact with property tax strategy?
Texas offers a large state sales and use tax exemption for qualifying data centers. It is not a property tax tool, but it changes the overall incentive picture and intersects with property tax rules in one narrow way.
The exemption comes in two tiers.
| Requirement | Qualifying Data Center (§ 151.359) | Qualifying Large Data Center Project (§ 151.3595) |
|---|---|---|
| Minimum square footage | 100,000 sq ft | 250,000 sq ft |
| Full time jobs | 20 (at 120% of county average weekly wage) | 40 |
| Capital investment over 5 years | $200 million | $500 million |
| Reserved transmission capacity | Not required | 20 MW |
| Exempted taxes | State sales tax (6.25%) only | State and local sales taxes |
| Duration | 10 years ($200M to $250M) or 15 years ($250M plus) | 20 years (for $500 million or more) |
Qualifying purchases include electricity, servers, cooling systems, generators, network equipment, racks, raised floor systems, and software. The exemption does not cover office equipment, janitorial supplies, property incorporated into real estate, or items leased for a year or less. Texas Comptroller
The only direct link to property tax law is the bar mentioned earlier. A project that takes the sales tax exemption cannot also take a Chapter 313 or JETI property tax limitation. Since JETI excludes data centers anyway, that link is largely dormant. The sales tax exemption does not block local Chapter 312 abatements or Chapter 380 grants. A developer can use both the state sales tax break and the local property tax tools on the same project.
The sales tax exemption is large. In the 2028-29 biennium, the state expects to forgo about $3.3 billion in sales tax revenue from AI data centers, up from $14.6 million in the 2014-15 biennium. Good Jobs First, Texas Senate 2026 Interim Charges By fiscal year 2030, the annual cost may reach nearly $1.8 billion. Texas Tribune The chair of the Senate Finance Committee has called the numbers unsustainable and plans to look at filing legislation ahead of the 2027 session. Texas Tribune So while the exemption is not a property tax issue, any change could reshape the total package available to a new project.
Real examples of property tax deals for Texas AI data centers
The terms of local deals vary widely. These real cases show the range.
Meta data center in El Paso. A $1.5 billion project on 1,000 acres. The city approved a Chapter 380 agreement providing an 80 percent rebate on city property taxes for up to 35 years. The county granted an 80 percent Chapter 312 abatement for 10 years per phase. The combined city county incentive package is worth about $110 million for Phase 1 and up to $550 million across all phases. The school district, community college, and hospital district still collect their full taxes. City of El Paso
Meta data center in Temple. An $800 million facility on 400 acres. The city and the Temple Economic Development Corporation granted a partial 10 year property tax abatement. ConstructConnect
Edged data center in Fort Worth (proposed). A $1 billion waterless data center sought a 50 percent city tax abatement over 10 years. The Fort Worth City Council delayed the vote in March 2026 after public opposition. The abatement would have cost the city $16 million in forgone taxes while generating $47 million over the agreement life. KERA News
Google data centers in Midlothian and elsewhere. Google committed $40 billion to three new Texas data centers through 2027. The specific sales and use tax exemption terms have not been publicly disclosed. Governor’s press release, Good Jobs First
CyrusOne in Houston. The City of Houston approved a Chapter 312 abatement in 2013. City of Houston
Integra Mission Critical in Houston. The city approved a Chapter 312 abatement in December 2024. City of Houston
Smaller counties are also entering the market. Armstrong County and Archer County have adopted Chapter 312 guidelines that name AI data centers and cryptocurrency mining as eligible improvements, with application fees of $1,500 and $1,000. Armstrong County guidelines, Archer County guidelines
What these local deals mean for developers and lenders?
No statewide exemption means every project faces a one off negotiation. That requires time, local political support, and careful structuring. A lender must underwrite the risk that an abatement might not be renewed or could be revoked if the project misses its targets.
School district taxes remain a fixed cost. With no Chapter 313 or JETI relief, the full school M&O rate applies. That must be built into the project economics for the life of the asset.
The local tools have formal procedural steps. A reinvestment zone needs a public hearing and an ordinance. Abatement guidelines must be adopted. The process can take several months.
Political pushback is becoming more common. Cities including San Marcos, Amarillo, College Station, Waco, and Harlingen have seen residents pressure officials to block or restrict AI data center projects. Texas Tribune Even when a project meets the legal criteria, the city council may vote no. The Edged Fort Worth delay is one example.
Reporting and compliance are strict. A Chapter 312 agreement requires an annual application to the appraisal district and certification of compliance. Chapter 380 agreements must be reported to the Comptroller within 14 days. Missing a deadline can trigger penalties or clawback.
On the plus side, the state sales tax exemption is broad and can significantly lower capital costs. A project that meets the investment and job thresholds can combine that benefit with local property tax relief. The two tracks are separate and do not conflict.
Key takeaways
- Texas gives no automatic property tax break for AI data centers. All relief must be negotiated with the local taxing units.
- The main tool is a Chapter 312 tax abatement, which can cut taxes on new value for up to 10 years, with a maximum abatement of 100 percent.
- Chapter 380 and 381 economic development grants can be structured as property tax rebates and stacked with a Chapter 312 abatement.
- School district taxes, the largest part of the bill, cannot be abated under current law because the old Chapter 313 expired and the JETI Act excludes data centers.
- The state sales tax exemption is a separate, large benefit for equipment and electricity. It does not block local property tax tools, though it does bar using the unavailable school district programs.
- Local political opposition is growing, and some city councils are delaying or denying abatements.
- Every deal is negotiated piece by piece. Developers and lenders should plan for variable timelines and full school tax exposure.
Frequently asked questions
Q:Does Texas have a statewide property tax exemption for AI data centers?
A:No. There is no automatic property tax exemption for AI data centers in the Texas Tax Code. Cities, counties, and special districts can offer property tax abatements through local agreements under Chapter 312. Texas Comptroller
Q:What is a Chapter 312 tax abatement?
A:It is an agreement between a local taxing unit (city, county, or special district) and a property owner to exempt a portion of the new property value from tax for up to 10 years. The abatement applies only to the increase in value over the base year. Tex. Tax Code § 312.204
Q:How long can a Chapter 312 abatement last?
A:The maximum term is 10 years. Tex. Tax Code § 312.204 The reinvestment zone itself lasts 5 years and may be renewed.
Q:Can an AI data center get school district property tax relief in Texas?
A:Not under current law. The old Chapter 313 program expired, and the replacement JETI Act does not cover data centers. School district maintenance and operations (M&O) taxes remain unabated. Comptroller Fiscal Notes, Tax analysis
Q:What is the difference between a Chapter 312 abatement and a Chapter 380 grant?
A:A Chapter 312 abatement reduces the property tax bill directly by exempting value. A Chapter 380 grant is a payment from the city (or Chapter 381 from a county) that can equal a portion of taxes paid, functioning like a rebate. The grant does not change the tax bill itself. The two can be used together. Texas Comptroller, Chapter 312 Overview, Texas Comptroller, Chapters 380-381, Texas Comptroller, Local Development Agreement Database
Q:Does the state sales tax exemption affect property taxes?
A:The sales tax exemption is a separate benefit. The only direct link is that a project taking the sales tax exemption cannot also take a Chapter 313 school district tax break. Since Chapter 313 has expired and data centers are excluded from its successor JETI, this bar has little current effect. The sales tax exemption bars a Chapter 313 limitation on appraised value. 34 Tex. Admin. Code § 3.335(m)
Q:What happens if the project fails to meet its job or investment targets?
A:The abatement or grant agreement can include clawback provisions. The local government can terminate the deal and recover the tax benefit. TTARA presentation
Q:Are these local agreements public?
A:Chapter 312 agreements are reported to the Comptroller and are public. Chapter 380 and 381 agreements must be reported to a searchable Comptroller database within 14 days. Tex. Loc. Gov’t Code § 380.004, Tex. Loc. Gov’t Code § 381.005, Comptroller However, the Comptroller does not release individual sales tax exemption amounts, citing a state law that shields competitive business information. Texas Tribune
Q:Can an AI data center combine multiple tax relief programs?
A:Yes. A project can stack a city Chapter 312 abatement, a county Chapter 312 abatement, a Chapter 380 grant from the city, and the state sales tax exemption, all at the same time. The El Paso Meta deal used both a Chapter 380 grant and a Chapter 312 abatement. El Paso Matters
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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.