Comptroller Rules Power Plant Equipment Ineligible

Texas tax officials say equipment serving a Large Data Center Project does not qualify for certain project exemptions.

Updated on Nov. 10, 2026 in Data Centers

Bold flat-color editorial illustration of an electrical substation transformer and steel lattice towers on flat Texas plains, in deep red, cream, and slate grey. — The Texas Comptroller ruled that power plant equipment serving a Large Data Center Project does not qualify for certain state tax exemptions, though the electricity itself may still be exempt. AI Illustration. Upload story photo >

The Texas Comptroller ruled that power plant equipment serving a Large Data Center Project does not qualify for certain project exemptions under the state Tax Code. An affiliate or parent identified as an owner, operator, or occupant on the project application may still claim an exemption for electricity used directly by the certified project.

Why it matters

The ruling clarifies which equipment tied to large data center developments can receive tax relief in Texas, a state where data center projects are a growing area of economic activity. Companies planning such projects can use the distinction between power plant equipment and the electricity itself when assessing their tax position.

The ruling distinguishes between equipment categories: gas turbines, gas engine generators, and solar panels used to generate electricity for sale may qualify for the manufacturing exemption under § 151.318, while power plant equipment serving the project does not qualify under § 151.3595(b)(2) or (11). The extraction does not provide the dollar value of exemptions or the scale of the project.

The players

Texas Comptroller

The Texas Comptroller of Public Accounts is the state's chief tax collector and administers sales and use tax exemptions, including those for data center projects.

The details

The Comptroller found that power plant equipment serving a Large Data Center Project falls outside the exemptions under Tax Code § 151.3595(b)(2) or (11). The ruling notes that power substation equipment may qualify under specified circumstances, and that an affiliate or parent named on the project application may claim an exemption by furnishing electricity to the certified project.

The Comptroller ruling and its accompanying article were published November 10, 2026.

Industry Dynamics

The ruling applies the exemption framework of Texas Tax Code § 151.3595 to a Large Data Center Project, drawing a line between power plant equipment that is excluded and the electricity an affiliate or parent may claim. It shows how the state's data center incentives are being interpreted at the level of individual equipment categories, which matters for developers weighing the cost of building their own generation.

Developers and affiliates planning data center projects in Texas should review which equipment and electricity purchases fall under the exemption before committing capital. The distinction between excluded power plant equipment and electricity an affiliate may claim affects how project costs are structured.

The takeaway

Tax treatment for data center projects in Texas depends on the specific equipment involved, so project planners should separate power plant assets from the electricity they produce when evaluating exemptions.