cost responsibility agreements; data centers

HB2738 - 572R - I Ver

REFERENCE TITLE:
cost responsibility agreements; data centers

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HB 2738

Introduced by

Representatives
Crews: Austin, Garcia, Mathis, Villegas, Volk

AN
ACT

Amending section 41-1519, Arizona
Revised Statutes; relating to the Arizona commerce authority.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 41-1519, Arizona Revised Statutes, is amended to read:

START_STATUTE
41-1519.

Computer data center tax relief; definitions

A.
From
and after August 31, 2013,
Tax relief is allowed for the owner or
operator of a computer data center certified pursuant to this section.� The
same tax relief is allowed for qualified colocation tenants of the computer
data center. All tax relief applies during the qualification period.

B. To qualify for the tax relief, the owner or
operator shall submit
both of the following
to the
authority
:

1.
An application on a form
prescribed by the authority that includes all of the following:

1.
(
a
)
The owner's or operator's name, address and
telephone number.

2.
(
b
)
The address of the site where the facility is or
will be located, including, if applicable, information sufficient to identify
the specific portion or portions of the facility composing the computer data
center.

3.
(
c
)
If the computer data center is to qualify under
subsection E, paragraph 1 of this section, both of the following:

(a)
(
i
)
The anticipated investment associated with the
computer data center for which the tax relief is being sought and whether the
computer data center is anticipated to qualify as a sustainable redevelopment
project.

(b)
(
ii
)
An affirmation, signed by an
authorized executive representing the owner or operator, that the computer data
center is expected to satisfy one of the certification requirements prescribed
in subsection E, paragraph 1 of this section and that the computer data center
will not violate subsection M of this section.

4.
(
d
)
If the computer data center is to qualify under subsection
E, paragraph 2 of this section, an affirmation, signed by an authorized
executive representing the owner or operator, that the computer data center has
satisfied the certification requirements prescribed in subsection E, paragraph
2 of this section, whether the computer data center qualifies as a sustainable
redevelopment project and that the computer data center will not violate
subsection M of this section.

2. A copy of the cost responsibility
agreement between the owner or operator and the electric utility serving the
computer data center. The cost responsibility agreement shall require that the
owner or operator pay all costs that are associated with dedicated upgrades
that are required to serve the computer data center.

C. Within sixty days after receiving a complete and
correct application
and the cost responsibility agreement
,
the authority shall review the application and either issue a written
certification that the computer data center qualifies for the tax relief or
provide written reasons for its denial.� Failure to approve or deny the
application within sixty days after the date the owner or operator submits the
application to the authority constitutes approval of the computer data center,
and the authority shall issue written certification to the owner or operator
within fourteen days. The effective date of the certification is
either the date on which the application was submitted to the authority or a
prospective date stated in the application that does not exceed five years
after the date on which the application was submitted. The authority
shall send a copy of the certification, including its effective date, to the
department of revenue. The authority shall not certify any new
computer data center that submits an application to the authority after
December 31, 2033.

D. An owner or operator may separate a facility into
one or more computer data centers, which may each receive a separate
certification if each computer data center individually meets the requirements prescribed
in subsection E of this section.� A portion of a facility or an article of
computer data center equipment shall not be deemed to be a part of more than
one computer data center.� The owner or operator may aggregate one or more of
the parcels, buildings, condominiums or modular data centers in a facility into
a single computer data center if, in the aggregate, the parcels, buildings,
condominiums and modular data centers meet the requirements of subsection E of
this section.

E. A computer data center must meet one of the
following requirements after taking into account the combined investments made
by the owner, operator or qualified colocation tenants of a computer data
center:

1. On or before the fifth anniversary of
certification, the computer data center creates a minimum investment of at
least:

(a) $25,000,000 of new investment, including costs
of land, buildings, improvements, modular data centers and computer data center
equipment, whether owned or leased or paid for pursuant to a right to use
agreement, if the computer data center is located in a county with a population
of eight hundred thousand or less persons.

(b) $50,000,000 of new investment, including costs
of land, buildings, improvements, modular data centers and computer data center
equipment, whether owned or leased or paid for pursuant to a right to use
agreement, if the computer data center is located in a county with a population
of more than eight hundred thousand persons.

2. During the seventy-two months immediately
before September 1, 2013, the computer data center created an investment of at
least $250,000,000, including costs of land, buildings, improvements,
modular data centers and computer data center equipment, whether owned or leased
or paid for pursuant to a right to use agreement.

F. On or before the
fifth anniversary of the certification of a new computer data center, the owner
or operator shall notify the authority in writing that the computer data center
for which the certification is requested has or has not satisfied the
requirements prescribed in subsection E, paragraph 1 of this
section. Until a new computer data center satisfies the requirements
prescribed in subsection E, paragraph 1 of this section, the owner or operator
shall keep detailed records of all investment created by the new computer data
center, including costs of land, buildings, improvements, modular data centers
and computer data center equipment, and all tax relief directly received by the
owner or operator. This subsection does not apply to an existing
computer data center.

G. If the authority determines that:

1. A new computer data center that is certified
under subsection E, paragraph 1 of this section has not complied with the
requirements and time periods prescribed by subsection E, paragraph 1 of this
section, the authority shall revoke the computer data center's
certification. If the certification is revoked, the qualification
period of any owner, operator or qualified colocation tenant of the computer
data center automatically terminates, and the department of revenue may
recapture all or part of the tax relief provided directly to the owners and
operators.� A qualified colocation tenant is not subject to recapture of any
part of tax relief received pursuant to this section, except that a
contributing qualified colocation tenant may be subject to recapture if it is
located in a computer data center that is certified from and after August 31,
2016.� An owner or operator may appeal any revocation under this paragraph
pursuant to chapter 6, article 10 of this title.

2. There has been a violation of subsection M of
this section with respect to a computer data center:

(a) The authority shall revoke the computer data
center's certification and, if revoked, the qualification period of any owner,
operator or qualified colocation tenant of the computer data center
automatically terminates.

(b) The department of revenue may not recapture any
tax relief provided directly to the owner, operator or qualified colocation
tenant before the date of revocation.

(c) An owner or operator may appeal any revocation
under this paragraph pursuant to chapter 6, article 10 of this title.

H. The authority and the department of revenue shall
adopt rules and prescribe forms and procedures as necessary for the purposes of
this section. The authority and the department shall collaborate in adopting
rules as necessary to avoid duplication and inconsistencies while accomplishing
the purposes of this section.� The authority has exclusive authority over
issues related to certification, including determinations as to whether a
computer data center has satisfied the requirements of subsection E of this
section, constitutes a qualified sustainable redevelopment project or has
committed a violation of this section.� The department of revenue has exclusive
authority over the administration of tax relief.

I. Proprietary business information contained in the
application described in subsection B of this section, the written notice
described in subsection F of this section and the list described in subsection
J of this section are confidential and shall not be disclosed to the public
except that the information shall be transmitted to the department of revenue.�
The authority or the department may disclose the name of a computer data center
that has been certified pursuant to this section.

J. The owner or operator shall provide the authority
and the department of revenue with a list of qualified colocation tenants,
including the commencement and expiration dates of each qualified colocation
tenant's agreement to use or occupy all or part of the computer data center,
and shall notify the authority and the department of any changes within thirty
days. The failure of an owner or operator to provide the list or
notify the authority and department of revenue of changes within the required
time is not grounds for termination of the computer data center's
certification, but may preclude unlisted colocation tenants from receiving tax
relief until the list is provided or updated.

K. Except as provided in subsection G of this
section, if a computer data center has been certified, the certification
remains in effect, even in the event of a future transfer, sale or disposition,
directly or indirectly, of the computer data center.

L. For the purposes of qualifying and continuing as
a sustainable redevelopment project:

1. After receiving certification, an owner may
substantially demolish all or part of an existing building to the extent
reasonably necessary to accommodate future computer data center use, and the
demolition is not cause for loss of certification as a sustainable
redevelopment project. An existing building that has been
substantially demolished before certification is not eligible to qualify as a
sustainable redevelopment project.�

2. An owner or operator may expand the boundaries of
a certified computer data center by increasing the size of an existing building
within a sustainable redevelopment project or by building additional
improvements in an unlimited manner to the extent the expansion is constructed
on the same parcel of land on which the original sustainable redevelopment
project is located or on a contiguous parcel, regardless of whether the
contiguous parcel was within the original description of the boundaries of the
certified computer data center.� Expansion activities do not prevent a facility
from maintaining its classification as a sustainable redevelopment project.

3. All construction activities and investments
related to demolition and expansion activities described in this subsection are
considered to be a part of the sustainable redevelopment project.

M. This section does not allow a computer data
center to do either of the following:

1. Generate electricity for resale purposes.

2. Generate, provide or sell electricity outside of
the computer data center.

N. The owner or operator may be a single individual
or entity or multiple affiliated entities.

O. Within one year after
certification and each year thereafter, the owner or operator shall submit to the
authority a report that DETAILs all of the following:

1. The number of full-time employees
who were continuously employed by the certified computer data center in the
preceding calendar year.

2. The computer data center's total
energy use in the preceding calendar year.

3. The amount the certified computer
data center has spent on capital investments in the preceding calendar year and
cumulatively since certification.

4. The amount of water that was used
by the computer data center in the preceding calendar year.

5. The sources of the energy and
water that were used by the computer data center in the preceding calendar
year.

6. Compliance with the cost
responsibility agreement prescribed in subsection B, paragraph 2 of this
section.

P. If an owner or operator does not
show COMPLIANCE with the cost responsibility agreement as required by
subsection O, paragraph 6 of this section, the authority shall notify the
department of revenue.� if the department of revenue determines that the owner
or operator was not in compliance with the cost responsibility agreement
prescribed in subsection B, paragraph 2 of this section and that the owner or
operator received tax relief, the department of revenue shall recapture all of
the tax relief provided to the owner or operator.

O.

Q.
For
the purposes of this section:

1. "Computer data center" means all or
part of a facility that may be composed of multiple businesses or owners, that
is or will be predominantly used to house working servers and that may have
uninterruptible energy supply or generator backup power, or both, cooling
systems, towers and other temperature control infrastructure.

2. "Computer data center equipment" means
equipment that is used to outfit, operate or benefit a computer data center and
component parts, installations, refreshments, replacements and upgrades to this
equipment, regardless of whether affixed to or incorporated into real property,
and whether owned, leased or used by the owner or operator pursuant to a
contract for the right to use the equipment, including:

(a) All equipment necessary for the transformation,
generation, distribution or management of electricity that is required to
operate computer server equipment, including generators, uninterruptible
energy, supplies, conduit, gaseous fuel piping, cabling, duct banks, switches,
switchboards, batteries and testing equipment.

(b) All equipment necessary to cool and maintain a
controlled environment for the operation of the computer server and other
components of the computer data center, including mechanical equipment,
refrigerant piping, gaseous fuel piping, adiabatic and free cooling systems,
cooling towers, water softeners, air handling units, indoor direct exchange
units, fans, ducting and filters.

(c) All water conservation systems, including
facilities or mechanisms that are designed to collect, conserve and reuse
water.

(d) All enabling software, computer server
equipment, chassis, networking equipment, switches, racks, cabling, trays and
conduit.

(e) All monitoring equipment and security systems.

(f) Modular data centers and preassembled components
of any item described in this paragraph, including components used in the
manufacturing of modular data centers.

(g) Other tangible personal property that is essential
to the operations of a computer data center.

3. "Contributing qualified colocation
tenant" means a qualified colocation tenant that is an operator or that
had its anticipated investment included in an application for certification for
the purposes of satisfying subsection E, paragraph 1 of this section.

4. "Existing building" means any existing
vertical building improvement located at a facility used for commercial
purposes at the time of its acquisition by an owner, but not including single
family residential structures, barns or other agricultural structures.

5. "Existing computer data center" means a
computer data center that is certified under subsection E, paragraph 2 of this
section.

6. "Facility" means one or more parcels of
land in this state and any structures and personal property contained on the
land.

7. "Investment" means all monies spent to
acquire a facility regardless of prior use and all monies spent to construct or
expand a computer data center, including costs of land, buildings,
improvements, modular data centers and computer data center equipment.� For new
data centers, investment includes all costs incurred on or after a date that is
thirty days before the date the application is submitted to the authority.

8. "Modular data center" means a portable
system of information technology, climate control, energy supply and energy
distribution machinery, equipment and related tangible personal property
contained in an intermodal freight container or similar structure.

9. "New computer data center" means a
computer data center that is certified under subsection E, paragraph 1 of this
section.

10. "Operator" means any individual or
entity that operates a computer data center as an operator or lessor or
pursuant to a contract with an owner or lessor.� Operator includes a licensed
property management company, a property lessor or any other individual or
entity responsible for the control, oversight or maintenance of a facility.

11. "Qualification period" means:

(a) With respect to the owner or operator of a
computer data center, a period of time beginning on the effective date of the
computer data center's certification and expiring at the end of the tenth full
calendar year following the calendar year containing the effective date,
except, if a computer data center is a sustainable redevelopment project,
qualification period means a period of time beginning on the effective date of
the computer data center's certification and expiring at the end of the
twentieth full calendar year following the calendar year containing the
effective date.

(b) With respect to the qualified colocation tenant
of the owner or operator of a computer data center certified under this
section, a period of time beginning on the date that the qualified colocation
tenant enters into an agreement concerning the use or occupancy of the computer
data center and expiring at the earlier of the expiration of the term of the
agreement or the tenth full calendar year following the calendar year in which
the qualified colocation tenant entered into the agreement, except, if a
computer data center is a sustainable redevelopment project, qualification
period means a period of time beginning on the date that the qualified
colocation tenant enters into an agreement concerning the use or occupancy of
the computer data center and expiring at the earlier of the expiration of the
term of the agreement or the twentieth full calendar year following the
calendar year in which the tenant entered into the agreement.� The qualification
period for a qualified colocation tenant may not extend beyond the
qualification period for the owner or operator of the computer data center.

12. "Qualified colocation tenant" means an
entity that contracts with the owner, the operator or another qualified
colocation tenant of a computer data center that is certified pursuant to this
section to use or occupy all or part of the computer data center for at least
five hundred kilowatts per month for a period of two or more years.

13. "Sustainable redevelopment project"
means a computer data center that satisfies the requirements in subsection E of
this section and is either:

(a) A newly constructed data center, with at least a
$200,000,000 investment, that attains certification under the energy star or
green globes standard, the leadership in energy and environmental design green
building rating standard developed by the United States green building council
or an equivalent green building standard and was not previously certified under
these standards.

(b) A data center that occupies an existing facility
that either:

(i) Was at least fifty percent vacant for six of the
twelve consecutive months before the acquisition by purchase or lease of or
with respect to the facility.

(ii) Attains certification under the energy star or
green globes standard, the leadership in energy and environmental design green
building rating standard developed by the United States green building council
or an equivalent green building standard and was not previously certified under
these standards.

14. "Tax relief" means the deductions of
the gross proceeds of sale or gross income from the sale, use, installation,
assembly, repair or maintenance of computer data center equipment as prescribed
by sections 42-5061, 42-5075, 42-5159 and 42-6004 for
use at a computer data center.
END_STATUTE