A data center must obtain certification from the Arizona Commerce Authority to receive the tax relief. The owner or operator must submit an application with specified ownership, site, investment, qualification, and compliance information; the Authority generally has 60 days to approve or deny it. The Authority may not certify a new data center whose application is submitted after December 31, 2033. (https://azleg.gov/ars/41/01519.htm#:~:text=The%20authority%20shall%20not%20certify%20any%20new%20computer%20data%20center)

A new data center must create at least $25 million of investment within five years if located in a county with 800,000 or fewer residents, or at least $50 million if located in a county with more than 800,000 residents. An existing data center must have created at least $250 million of investment during the 72 months before September 1, 2013. (https://azleg.gov/ars/41/01519.htm#:~:text=On%20or%20before%20the%20fifth%20anniversary%20of%20certification)

A new data center must notify the Authority by its fifth certification anniversary whether it met the required investment threshold and must keep detailed investment and tax-relief records until it does so. Failure to meet the investment requirements and deadlines can result in certification revocation, termination of the qualification period, and possible recapture of tax relief received by the owner or operator. (https://azleg.gov/ars/41/01519.htm#:~:text=Until%20a%20new%20computer%20data%20center%20satisfies%20the%20requirements)

A certified data center may not generate electricity for resale or generate, provide, or sell electricity outside the data center. A violation requires revocation of certification and termination of the qualification periods, although tax relief received before revocation may not be recaptured under that violation provision. (https://azleg.gov/ars/41/01519.htm#:~:text=This%20section%20does%20not%20allow%20a%20computer%20data%20center%20to%20do%20either)

To qualify as a qualified colocation tenant, an entity must contract to use or occupy all or part of a certified data center for at least 500 kilowatts per month and for at least two years. The tenant's qualification period also cannot extend beyond the owner's or operator's qualification period. (https://azleg.gov/ars/41/01519.htm#:~:text=use%20or%20occupy%20all%20or%20part%20of%20the%20computer%20data%20center%20for%20at%20least%20five%20hundred%20kilowatts%20per%20month)

The owner or operator must provide the Authority and Department of Revenue with a list of qualified colocation tenants, including agreement start and expiration dates, and must report changes within 30 days. Unlisted tenants may be denied tax relief until the list is provided or updated. (https://azleg.gov/ars/41/01519.htm#:~:text=shall%20notify%20the%20authority%20and%20department%20of%20any%20changes%20within%20thirty%20days)

Under the bill's expansion provisions, additional contiguous land may be added to a certified data center only by providing the Authority with information sufficient to identify the land. The expansion does not extend the original qualification period, and the expanded space receives only the remaining portion of that period, subject to the 10-year limit or the 20-year limit for a sustainable redevelopment project. (https://www.azleg.gov/legtext/55leg/1r/bills/hb2649p.htm#:~:text=Add%20additional%20contiguous%20land%20to%20a%20certified%20computer%20data%20center)

Under the bill's land-removal provisions, undeveloped land may be removed without penalty, but if its acquisition cost was used to satisfy the original data center's minimum investment, that cost may not also be used to satisfy the minimum investment requirement for a new data center using the removed land. (https://www.azleg.gov/legtext/55leg/1r/bills/hb2649p.htm#:~:text=to%20the%20extent%20the%20acquisition%20cost%20of%20the%20removed%20land%20was%20used)

Certified data centers, their owners or operators, and qualified colocation tenants may receive tax relief for eligible equipment during the applicable qualification period. Tax relief is allowed for the owner or operator and the same relief is available to qualified colocation tenants.

The tax relief covers a broad range of data-center equipment, including power systems, generators, cooling systems, water-conservation systems, servers, networking equipment, racks, monitoring and security systems, modular data centers, software, and other essential tangible personal property. Computer data center equipment includes these categories.

The equipment incentive is implemented through deductions or exemptions from Arizona transaction privilege and use taxes, including sales to owners, operators, qualified colocation tenants, and authorized agents during the qualification period. Computer data center equipment sold to the owner, operator or qualified colocation tenant is covered.

Certain installation, assembly, repair, and maintenance contracts for qualifying data-center equipment may receive the prime-contracting deduction when the equipment has independent functional utility; real-property work that merely facilitates installation is excluded. The deduction provided in this paragraph applies to qualifying activities.

New data centers can qualify by making at least $25 million of new investment in counties with populations of 800,000 or fewer, or at least $50 million in larger counties, within five years after certification. Existing data centers can qualify based on at least $250 million invested during the 72 months before September 1, 2013. On or before the fifth anniversary of certification, these investment requirements apply.

The normal qualification period lasts through the tenth full calendar year following the certification year, while a sustainable redevelopment project can receive relief through the twentieth full calendar year. A tenant's period is also limited by its agreement term and cannot extend beyond the owner's or operator's period. Qualification period is defined with these limits.

Sustainable redevelopment status can extend the incentive period to 20 years and is available for a newly constructed center with at least $200 million invested and qualifying green-building certification, or for a center occupying an existing facility that was at least 50% vacant for six of the preceding twelve months or obtains qualifying green-building certification. Sustainable redevelopment project is defined this way.

A certified sustainable redevelopment project may substantially demolish an existing building after certification to accommodate data-center use without losing its status, and may expand on the original parcel or a contiguous parcel without an unlimited expansion being disqualifying. After receiving certification, an owner may substantially demolish and may expand the boundaries under the stated conditions.

During the qualification period, an owner or operator may add contiguous land to a certified data center by identifying it to the authority, without increasing the qualification period, and may remove undeveloped land without penalty. Removed land may be used for a new data center if the new-center requirements are met and its acquisition cost is not double-counted. Add additional contiguous land and remove any portion of undeveloped land are expressly authorized.

The certification process has a 60-day review deadline; if the authority neither approves nor denies a complete and correct application within that period, the application is deemed approved and written certification must be issued within 14 days. Failure to approve or deny the application within sixty days constitutes approval.

A facility may be divided into multiple separately certified data centers, or multiple parcels, buildings, condominiums, or modular data centers may be aggregated into one certified center, provided each resulting center satisfies the applicable requirements. An owner or operator may separate a facility or aggregate qualifying components.

Certification generally remains effective after a future transfer, sale, or disposition of the data center, subject to revocation provisions. The certification remains in effect despite a future transfer, sale, or disposition.

Qualified colocation tenants can receive the same tax relief as the owner or operator if they contract to use or occupy space for at least 500 kilowatts per month for two or more years. Qualified colocation tenant is defined by these usage and contract requirements.

The owner or operator must provide tenant information to the authority and Department of Revenue, but proprietary business information in certification applications, notices, and tenant lists is confidential and generally cannot be disclosed publicly. Proprietary business information receives this protection.

The measure applies the data-center equipment tax changes retroactively to taxable periods beginning after September 12, 2013, with certain refund claims subject to a December 31, 2021 deadline and a $10,000 aggregate cap. This act applies retroactively and the aggregate refund amount may not exceed $10,000.