Honorable Morgan Meyer, Chair, House Committee on Ways & Means
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB3746 by Darby (Relating to the exemption of certain gas and electricity from sales and use taxes.), As Introduced
The fiscal implications of the bill cannot be determined due to the unknown timing of construction of facilities that would consume hydrogen exempted by the bill. The bill could result in significant loss of state sales and use tax revenue.
The bill would amend Section 151.317 (Sales and Use Tax: Gas and Electricity) of the Tax Code by stipulating the term “gas” in the section includes hydrogen, thereby exempting hydrogen from sales and use taxes when used for the purposes specified by the section.
Hydrogen is not within the meaning of gas currently exempted under Sec. 151.317; however, most current uses of hydrogen are manufacturing uses exempt under Subsections (1) and (2) of Sec. 151.318 (Property Used in Manufacturing).
There is, however, expected prospective use of hydrogen for powering data centers, that would not qualify for exemption as manufacturing use under Sec. 151.318(1)&(2) but would be exempt were Sec. 317 amended to include hydrogen as proposed by the bill, if the data centers were certified as qualifying data centers for purposes of sales tax exemption under Sec. 151.359 or 151.3595.
As there are no hydrogen powered data centers currently operational in the state, the bill is unlikely to have significant fiscal implications in 2026. And as the timing of construction of capacity and degree of use by tenants is unknown regarding the planned projects, the fiscal implications while potentially substantial cannot be determined.
Local Government Impact
The bill could result in significant loss of sales and use tax revenue from local taxing jurisdictions.