The $18.3B budget compromise package recently announced by Gov. Katie Hobbs and Arizona lawmakers features a three-year halt to the state’s Computer Data Center Tax Incentive Program.
Administered by the Arizona Commerce Authority, the incentive program uses sales and use tax exemptions on qualified purchases of data center equipment for up to 10 years, 20 years in some cases, if the applying project meets criteria as a sustainable redevelopment.
To qualify, projects generally have to constitute a minimum capital investment of at least $50M. ACA estimates $8.1B in capital investment has been pledged by projects under the program since 2014.
Seven projects have been pre-approved for the program in Fiscal Year 2025, with a total capital investment of more than $1.1B. ACA did not have the total incentive amounts available for those specific projects. The Authority reported another 23 projects have applied for incentives for FY 2026, with 15 being pre-approved.
A total of 78 applications have been pre-approved since 2013, with 30 having met the capital investment requirements.
Budget Shift is Latest in a Series of Industry Challenges
An unconfirmed estimate in the Fiscal Year 2027 executive budget Hobbs released in January said eliminating the tax incentive program could save Arizona an estimated $38.5M/year.
The Governor and Arizona legislators had an acrimonious back-and-forth over several aspects of their respective budget plans, but eliminating the data center incentive program had support on both sides.
Hobbs celebrated the program’s suspension in a June 10 announcement, and House Democrats referred to it as the strongest freeze of its kind in the country.
While data center development has been a leading sector in the state and national construction industry, the field’s rapid pace of growth has generated multiple challenges.
Activist groups and residents have decried the scale, scope and pace of the projects and their perceived potential impacts on resources and quality of life. Developers have encountered increasing resistance to proposals, including an increasing number of jurisdictions imposing zoning, land use and other restrictions on where data centers may be built.
AZBEX has reported extensively on data center restrictions around the state. Much of our coverage is available on our website.
Along with the perceptual and regulatory challenges, developers also face extensive logistical issues regarding adequate water and power supply and delivery. Industry players and observers say the mounting challenges have begun to soften developers’ resolve when it comes to pushing potential projects across the finish line.
Data center developers and investors say stability and predictability are essential factors in determining when and where to build, adding that these elements are in increasingly short supply. (Source: Phoenix Business Journal)