The San Angelo Data Center Will Qualify for a Huge Tax Incentive. Will More Tax Breaks Follow?

SAN ANGELO, TX — The Texas Legislature wants the state to remain a national leader in data center development. While no major new sales tax legislation was passed in the most recent session, the foundational law called House Bill 1223 (HB 1223), passed in 2013 during the 83rd Legislature and signed by then-Gov. Rick Perry, continues to drive investment.

HB 1223 created Texas Tax Code §151.359, establishing a temporary state sales and use tax exemption for qualifying data centers. Subsequent amendments have expanded the program, which remains active today.

What the Exemption Covers

The 2013 law exempts the 6.25% state portion of sales and use tax on items “necessary and essential” to the operation of a qualified data center. Eligible purchases include:

• Servers, storage devices, networking equipment, and racks
• HVAC, cooling systems, electrical systems, emergency generators, and mechanical/plumbing components
• Software and related component parts
• Electricity used directly in the data center

Local sales taxes, (typically 1.5% city + 0.5% county in San Angelo) are not exempted, only the statewide rate is.

Qualification Requirements

To qualify, a data center generally must:

• Be at least 100,000 square feet
• Involve a significant capital investment: $200 million (for a 10-year exemption) or  $250 million (for 15 years) over five years
• Create at least 20 new full-time permanent jobs paying at least 120% of the county average weekly wage

In Tom Green County, the current average weekly wage is $1,121, meaning qualifying jobs must pay at least $1,345 per week — or roughly $69,950 annually.

Larger “qualifying large data center projects” can receive up to 20 years of relief. Importantly, both owners/operators and tenants/lessees (such as hyperscalers renting rack space) can claim the exemption on their qualifying purchases.

How Texas Competes Nationally

While Texas relies on this automatic, statewide sales tax break, other states offer more aggressive incentives:

Virginia, the nation’s leading data center market, provides a broad Data Center Retail Sales and Use Tax Exemption (roughly 5.3–6%). It has lower thresholds — $150 million investment and 50 new jobs — and has cost the state $1.6–$1.9 billion annually in recent years. The program is now under intense debate in 2026, with lawmakers considering ending or restricting it due to rising grid and energy costs.

Utah takes an even stronger approach with direct personal property tax rebates on data center equipment. If approved, the MIDA project in Utah's Box Elder County, servers, racks, chips, and related hardware qualify for full rebates. MIDA Executive Director Paul Morris said plainly: “They would not get any hyperscalers to come if you try to do the personal property tax on the equipment.”

Texas has chosen a more measured path. The HB 1223 incentive requires no local negotiations or city approvals — once certified by the Comptroller, it applies automatically. Many Texas communities, including San Angelo, are deliberately not yet offering traditional property tax abatements, preferring instead to collect full local taxes while still benefiting from the state sales tax relief.

Scrutiny Ahead

The program has successfully attracted dozens of major data centers, with more than 100 additional projects in the pipeline. In 2025 alone, the exemption is projected to cost the state more than $1 billion in forgone revenue, expected to rise toward $1.8 billion annually by 2030.

Lawmakers from both parties have begun reviewing the program ahead of the 2027 session. Senate Finance Committee Chair Joan Huffman (R-Houston) and others have scheduled interim hearings to examine stronger job requirements, transparency, and possible limits on the incentive.

Relevance to San Angelo’s Skybox Project

For the proposed 600 MW Skybox/Emergent data center campus in San Angelo, the statewide incentive remains available if the project receives Comptroller certification. It would lower equipment and electricity costs for both the developer and future tenants — without any local property tax abatements.

Property tax abatements are not entirely off the table, however. As the project advances, the City of San Angelo is negotiating a Chapter 380 agreement with the developers. Authorized under Texas Local Government Code Chapter 380, these agreements give cities broad flexibility to offer customized incentives, such as grants, rebates of city sales tax, infrastructure support, or other assistance. In exchange the City will obtain developer commitments on job creation, workforce training, infrastructure improvements, and community protections.

The Comptroller’s office maintains an active list of certified projects and handles applications, which are typically submitted closer to equipment procurement. Full details are available on the comptroller's website.