H.B. No. 5588 proposes an exemption from ad valorem taxation for the total appraised value of real property and tangible personal property used by data centers that meet specific criteria. The bill defines a "data center" as a facility of at least 100,000 square feet that is primarily used for housing servers and related equipment for data processing, storage, and distribution. To qualify for the exemption, the data center must utilize its uninterruptible power source and generator backup power to meet its energy demands and must have a contract to provide energy or ancillary services to the ERCOT power grid or another power grid. The bill also outlines the definition of "qualified property," which includes the building, the land it occupies, and the tangible personal property used for energy demands.

The proposed legislation will take effect on January 1, 2026, contingent upon the approval of a constitutional amendment by voters that would authorize such tax exemptions. If the amendment is not approved, the bill will have no effect. The changes made by this Act will only apply to ad valorem tax years beginning on or after its effective date.

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