Opportunity Zone data centers in Texas

Texas offers the strongest combination of demand, land and tax simplicity for an Opportunity Zone data center, and the weakest near-term certainty on grid power. An Opportunity Zone is a low-income census tract designated under IRC §1400Z-1. An investor who puts an eligible capital gain into a Qualified Opportunity Fund (QOF) within 180 days defers federal tax on that gain for up to five years, gets a 10% basis step-up at year five (30% in a Qualified Rural Opportunity Fund, or QROF), and can exclude all appreciation on a sale after 10 years. The fund usually holds the data center through a Qualified Opportunity Zone Business (QOZB).

Four facts frame Texas in October 2026. First, the state's new zone list is nominated and awaiting Treasury certification, with zones effective January 1, 2027.^2,3 Second, Texas has no personal income tax, so the federal benefit is the whole benefit for individual residents. Third, Texas leads North America in data center development, with JLL counting about 26 GW in the state.²² Fourth, on August 3, 2026 Governor Abbott directed the Public Utility Commission of Texas (PUCT) and ERCOT to halt approval of new data center grid connections until they audit pending projects, and on September 21 he extended the pause to environmental permits at the Texas Commission on Environmental Quality (TCEQ).^17,19

For investors, that means the tax case in Texas is simple and the execution case turns on power. For a full treatment of the federal rules as they apply to data centers, see data centers in Opportunity Zones.

Texas's 2027 zones are the tracts Governor Abbott nominated in September 2026, once Treasury certifies them; the official list is still being certified. Treasury's Rev. Proc. 2026-14 lists 25,332 census tracts nationwide that meet the low-income community test, 8,334 of them wholly rural, and each governor may nominate up to 25% of the state's eligible tracts.¹ A tract qualifies if its median family income is no more than 70% of the state or metro median, or if its poverty rate is at least 20% and its median family income is no more than 125% of that median.³

Jackson Walker reports that the governor finalized the nominations on September 4, 2026.³ Press reports put the submission at 605 census tracts, spread across the Dallas–Fort Worth, Houston, Austin and San Antonio metros and rural counties.⁴ The Governor's office expects Treasury certification by November 28, 2026, and the designations run from January 1, 2027 through December 31, 2036.² We have not found an official Texas count of eligible tracts under Rev. Proc. 2026-14, or an official count of how many nominated Texas tracts are rural, so treat the 605 figure as reported and check the certified list before you rely on any tract.

Rural status matters more in Texas than in most states because so much data center land is in West Texas and the Panhandle. For Opportunity Zone purposes, a rural area is anywhere outside a city or town of more than 50,000 people and the urbanized areas next to it.⁵ Property in a zone made up entirely of rural area needs only 50% of building basis in improvements within 30 months to be substantially improved, and a QROF that holds at least 90% of its assets in such zones gives investors the 30% step-up. See rural data centers and Opportunity Zones and the new Opportunity Zone maps taking effect in 2027.

Not for individuals: Texas has no personal income tax, so an individual Texas resident has no state capital gains tax to defer or exclude. That makes the Texas answer simpler than in states that decouple from the federal rules, as our guide to state tax treatment of Opportunity Zone investments explains.

Entities are different. The Texas franchise tax is a margin tax on taxable entities (corporations, LLCs, partnerships with entity owners and similar) doing business in Texas. For reports due in 2026 and 2027 the rate is 0.75% of taxable margin (0.375% for retailers and wholesalers), and entities with total revenue at or below $2.65 million owe no tax.⁶ Total revenue starts from amounts on the federal return, but for franchise tax purposes the Internal Revenue Code means the code in effect for the federal tax year beginning January 1, 2007, as the Comptroller restated in rules adopted in February 2026.⁷ Because the Opportunity Zone provisions postdate that reference date, the franchise tax does not follow them. We found no Comptroller guidance on how a federally deferred gain is treated in total revenue, so a corporate or entity investor should confirm the treatment with its tax adviser.

Illustrative worked example. A Texas resident sells stock in 2027 for a $10,000,000 long-term gain and invests it in a QOF within 180 days. Assumptions: 23.8% federal rate (20% long-term capital gains plus 3.8% net investment income tax), no change in the fund's value at year five, no state income tax. With no investment, federal tax is $2,380,000 now. In a standard QOF, tax is deferred five years, then the 10% step-up removes $1,000,000 of gain and the investor owes $2,142,000. In a QROF, the 30% step-up leaves $7,000,000 taxable and $1,666,000 due. Texas adds nothing in any case. If the fund is held 10 years, appreciation on the investment is excluded federally, and again Texas has no tax to add.

Texas has two data center markets: the established metros and a fast-growing frontier of very large campuses in West Texas and beyond. JLL's midyear 2026 report says 77% of North American development is in frontier markets, with West Texas among them, and that Texas leads with 26 GW.²² Cushman & Wakefield counted 2.9 GW under construction in West Texas at the end of 2025, second only to Virginia.²⁶

Demand comes from hyperscale cloud and AI training, and from developers drawn by ERCOT's deregulated market and the option to pair a campus with gas, wind or solar generation. The scale is visible in ERCOT's queue: industry reporting counts more than 438,000 MW of large-load requests, about 89% of them data centers, and the governor's office cited more than 474 GW in its August directive.^21,17 Most of that will never be built, which is why the state is now testing which projects are real.

Texas offers a state sales and use tax exemption and local property tax abatements, and both can be combined with Opportunity Zone equity because they reduce project costs rather than change the federal tests. The details matter for underwriting.

The exemption's cost is what drives the debate. Texas Public Radio reported from a July 2026 Senate Finance hearing that the Comptroller estimated about $3.2 billion of lost sales tax over two years, that only 20 of 138 qualified data centers had been audited, and that 6 of those 20 were out of compliance with job requirements.¹¹ Holland & Knight calls the exemption at serious legislative risk ahead of the 2027 session.¹² Model your project both with and without it, and check whether any repeal would grandfather certified facilities.

On stacking: a sales tax exemption lowers the cost of equipment the QOZB buys, and an abatement lowers operating cost. Neither affects the QOF 90% asset test or the QOZB 70% tangible property test. The interaction to watch is title. Where a public entity holds title to make property tax-exempt and leases the facility back, the QOZB's property is leased, which brings in the leased property and related-party rules. See state data center tax incentives and Opportunity Zones and combining Opportunity Zones with other incentives.

Longer and less predictably than it did a year ago, because Texas has rewritten its large-load rules and then paused them for an audit. Most of Texas is served by ERCOT, the grid operator overseen by the PUCT; utilities such as Oncor and AEP Texas build the wires.

SB 6 (2025)

Senate Bill 6, enacted in June 2025, requires the PUCT to set interconnection standards for new or expanded loads of 75 MW or more at one site in ERCOT. The standards include proof of site control, a study fee of at least $100,000, and disclosure of whether the customer is seeking similar service elsewhere in Texas.^14,15 The PUCT published its draft rule (16 TAC §25.194) on March 12, 2026, including disclosure of backup generation.¹⁵ SB 6 also lets ERCOT order large loads to curtail during grid emergencies, and the PUCT is running separate dockets on forecasting, demand reduction and transmission cost allocation.¹⁶

Batch Zero and the 2026 audit

ERCOT's Batch Zero process groups qualifying loads of 75 MW and up into a single study. Applicants had to submit studies by July 10, 2026, classifications were due August 7, and results were expected by April 9, 2027.²¹ Governor Abbott's August 3 directive asked the PUCT and ERCOT to audit pending data center projects, including tax breaks received, power and generation plans, water use and ownership, and to deny connection to projects that fail.¹⁷ ERCOT sought extensions of its Batch Zero deadlines and temporarily paused the study process while the audit proceeds.¹⁸ On September 21, the governor directed TCEQ to stop issuing data center permits, including for off-grid projects, until ERCOT finishes the audit, expected in mid-December.¹⁹ A report released October 20 found that TCEQ kept processing some applications after that date; the governor's office says no permits have been approved.²⁰

Check power status first, then zone status, then water, fiber and local support. The scorecard summarizes how Texas looks on each factor in October 2026.

• Zone status: confirm the tract is on Treasury's certified list for January 1, 2027, not just the nomination list. Use the CDFI Fund mapping tool once it is updated; see how to check if a property is in an Opportunity Zone.
• Rural status: a tract outside any city of more than 50,000 and its adjacent urbanized area may be wholly rural, which opens the QROF and the 50% improvement rule.⁵
• On-site generation: West Texas campuses increasingly plan gas turbines on site.²⁴ If the QOZB owns the generation inside the tract, it can count toward the 70% test; if a utility or third party owns it, it does not.
• Lease structure: a single-tenant triple-net lease to a hyperscaler is not, by itself, an active trade or business under the regulations.²⁵ See powered shell and triple-net data centers.
• Local support: the audit asks developers to describe efforts to reduce community impacts.¹⁷ Early engagement with the county and school district is part of getting power, not separate from it.

For investors, Texas residency is an advantage and a Texas project is a power bet. A Texas individual with a large gain gets the full federal benefit with no state drag, whether the fund invests in Texas or elsewhere. An investor in a high-tax state such as California gets federal deferral but still owes home-state tax, wherever the project is. Gains invested after December 31, 2026 get the rolling five-year deferral, so the timing of a 2027 sale and the 180-day window matter more than the calendar year. Ask any Texas data center sponsor where the site sits in ERCOT's process and what happens to fund cash if the audit runs long. Federal pushback is a further risk: a bill introduced in the Senate in September 2026 would exclude data centers from Opportunity Zone benefits; it was referred to the Finance Committee and has not been enacted.²⁷

For landowners in nominated rural tracts, especially in West Texas and the Panhandle, the 2027 designation can raise the value of land with access to high-voltage transmission or gas. A landowner who sells appreciated land can defer that gain in a QOF; one who contributes land or ground-leases it to a QOZB needs to plan around the purchase and related-party rules. See Opportunity Zones for landowners.

For developers, the playbook is to secure site control and a credible interconnection position first, then align QOF closings with the power schedule. The ERCOT audit asks about tax breaks and ownership, so expect the Opportunity Zone structure itself to be disclosed. OZ Data Centers sponsors funds of this kind and screens Texas sites for certified zone status and power before raising capital. See Opportunity Zones for data center developers.