Arizona Data Center Incentives Boost Data Center Finance Opportunities

As more companies invest in data center real estate for their next generation computing and IT needs, more states and communities are making an effort to increase their market appeal. For many states, this extra attraction comes in the form of tax policies that make data center construction and use more cost-effective for enterprises. The Arizona House of Representatives recently made changes to the state’s Transaction Privilege Tax. Part of the House Bill 2009 will put tax incentives into practice on September 1, 2013. The wide-ranging bill provided exemptions from state and municipal Transaction Privilege Tax to owners, operators and colocation tenants of data centers.

To qualify as a data center, owners and operators must meet some location-based investment requirements. In order to exist as a new data center, the owner or operator must invest $25 million in the facility if it’s in a county with a population of less than 800,000 people or $50 million if the county has more than 800,000 residents. The investment must be within the first five years following certification. In order to register as an existing data center, the owner or operator has to indicate to the Arizona Commerce Authority that at least $250 million has been invested in the 72 months preceding the bill’s enaction.

The bill gives data centers several exemptions for 10 years, according to the Phoenix Business Journal:

  • Exempts data center construction from the prime contracting transaction privilege tax
  • Exempts data center equipment purchases from retail transaction privilege tax and use tax
  • Exempts data center electricity consumption from the utilities transaction privilege tax

Additionally, the bill offers data center owners and operators the opportunity to get certified as a “sustainable redevelopment project” for an additional 10 years of tax incentives, potentially offering the facility 20 years of favorable economic conditions.

Arizona data centers offer economic development
Industry leaders touted the legislation as increasing the viability of Arizona providers to compete for national prominence and offer more attractive data centers for lease or sale. Members of the data center community, as well as utility companies and economic development experts, praised the new bill as increasing the state’s attractiveness to businesses.

“Arizona was already a prime location for a data center, given its low rate of natural hazards and its business-friendly environment,” said Stuart Levinsky, GM, CyrusOne. “[T]hese new tax incentives provide a unique advantage to Arizona since most states don’t provide them to customers. We estimate that large enterprises or web-scale companies taking 5 megawatts could now expect to save roughly $30 million or more over a 10-year period when including power savings.”

In particular, Arizona’s proximity to California makes the state more appealing for the rapidly growing Silicon Valley crowd, whose data center needs may be expanding and are concerned about the IT costs of using an in-state data center. Additionally, some companies may be worried about environmental issues that can pose problems for California data centers, including volatile seismic activity.

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