H.B. No. 5588 proposes an exemption from ad valorem taxation for the total appraised value of real property used as a data center, as well as the tangible personal property utilized by the data center to meet its energy demands. The bill introduces a new section, Section 11.38, to the Tax Code, defining a "data center" as a facility of at least 100,000 square feet that is specifically constructed or refurbished for housing servers and related equipment. It outlines the requirements for a "qualified data center," which must use its uninterruptible power source and generator backup to meet all energy demands and have a contract to provide energy or ancillary services to the ERCOT power grid or another power grid.

The bill stipulates that individuals who own qualified property, which includes the building, land, and tangible personal property used for energy demands, are entitled to an exemption from taxation on the total appraised value of that property. The changes in law will only apply to ad valorem tax years beginning on or after the effective date of the Act, which is set for January 1, 2026, contingent upon the approval of a related constitutional amendment by voters. If the amendment is not approved, the Act will have no effect.

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