Arizona State Data Center Sales Tax Incentives

Arizona is rapidly emerging as a premier destination for data center development thanks to tax incentives for data center developers, including TPT, Use Tax, Qualified Facility, Quality Jobs and FTZ benefits designed to attract large-scale digital infrastructure projects.

Stream Data Centers operates and continues to expand its Phoenix I – VII hyperscale campus in Arizona, emerging as the largest development of its kind in the Phoenix metropolitan area, also known as The Valley of the Sun.

Overview of Arizona Data Center Incentives

Phoenix, Arizona’s rapidly growing market for data center development is driven by strong incentives, competitive operating costs, strong fiber infrastructure and a favorable climate with low natural disaster risk.

Arizona’s Computer Data Center Program, administered by the Arizona Commerce Authority (ACA), provides two primary tax exemptions for data center developers: Transaction Privilege Tax (TPT) Exemption and Use Tax Exemption. The exemptions apply to purchases of qualifying equipment and infrastructure. Certification is valid for 10 or 20 years depending on project type.

Arizona’s Qualified Facility Tax Program provides refundable income tax credits for capital investment and job creation to businesses that build or expand qualified facilities, including data centers. Annual reports provide details on program activity, reporting requirements, tax credit comparisons and industry growth.

The Quality Job Tax Credit, administered by the Arizona Commerce Authority, is designed to encourage business development and promote the creation of high-quality jobs in Arizona.

Arizona’s Foreign Trade Zone (FTZ) Incentives offer significant property tax reductions on both real and personal property located within designated FTZ areas. These benefits are available to qualifying businesses, including data center developers, if their facilities are sited within an FTZ or sub-zone and meet local and state requirements. The program helps reduce operating costs for capital-intensive projects like data centers.

Key Incentives Available to Arizona Data Center Developments

1. Transaction Privilege Tax (TPT) Exemption and Use Tax Exemption

The objective of Arizona’s Computer Data Center Program is to encourage computer data center (CDC) operation and expansion. The program provides Transaction Privilege Tax (TPT) and Use Tax exemptions at the state, county and local levels, on qualifying purchases of CDC Equipment.

State Requirements for Exemptions

• Must be certified as a CDC by the Arizona Commerce Authority (ACA).
• Must meet minimum investment thresholds:
  • If the CDC facility is located in either Maricopa or Pima County, a capital investment of at least $50 million is made within five years of the date of the Letter of CDC Certification from the ACA; or
  • If the CDC facility is located in any county other than Maricopa or Pima, a capital investment of at least $25 million is made within five years of the date of the Letter of CDC Certification from the ACA; or
  • In the case of an existing CDC, regardless of location, a capital investment of at least $250 million was made during the period between Sept. 1, 2007, and August 31, 2013.
  • If the CDC Facility is Greenfield SRP, a capital investment of at least $200 million must be made and the CDC must attain certification under the energy star or green globes standard within five years of the date of the CDC’s certification.
• Certification is valid for 10 years for standard CDCs. If the CDC qualifies as a Sustainable Redevelopment Project, the exemptions are available for up to 20 full calendar years following the year certification of the CDC is issued.
• Must submit a pre-approval application and comply with reporting requirements.
• Facility must be located in Arizona and used primarily for data center operations.

Benefits

• Exemption from Transaction Privilege Tax (TPT) and Use Tax on qualifying purchases.
• Applies to state, county, and local taxes.
• Significant cost savings on infrastructure and operational equipment.
• Program extended through December 31, 2033.

Qualifying Purchases

Purchases made by certified CDC owners, operators and qualified colocation tenants include the following:

• Equipment such as servers, storage devices, networking equipment, racks and cabinets, power distribution units (PDUs), uninterruptable power supplies (UPS), backup generators, cooling systems, fire suppression systems and security systems.
• Equipment used for installation, assembly, repair or maintenance such as tools and machinery used to install or maintain CDC equipment, replacement parts and components and materials used in the assembly or repair of qualifying equipment.
• Infrastructure supporting CDC operations such as raised flooring, cable and wiring, environmental monitoring systems and specialized HVAC systems.
• If a prime contractor is hired to build or retrofit a CDC, their purchases of qualifying equipment and materials may also be exempt, provided the CDC is certified and proper documentation (e.g., Form 5000) is presented.

2. Qualified Facility Tax Program

Arizona’s Qualified Facility Tax Credit Program provides refundable income tax credits to businesses that establish or expand qualified facilities in Arizona, including data centers.

Requirements

• The facility must be located in Arizona.
• It must be a qualified facility, such as a data center, manufacturing facility, manufacturing-related R&D facility or corporate headquarters.
• At least 80% of property and payroll must be used for qualified activities.
• At least 65% of sales revenue must come from outside Arizona.
• The facility must create net-new full-time jobs in Arizona.
• Jobs must meet minimum wage thresholds and offer health insurance.
• The business must submit a pre-approval application to the Arizona Commerce Authority.
• Compliance with annual reporting requirements is required.

Benefits

• Refundable income tax credits up to 10% of the qualified capital investment and $30,000 per net new full-time job (if investment exceeds $2 billion)
• Maximum credit of $30 million per taxpayer per year
• Credits can be claimed over a three-year period
• Encourages long-term investment and job creation
• Supports expansion of data centers, manufacturing, and HQ operations

3. Quality Job Tax Credit

The Qualified Facility Tax Credit Program provides refundable income tax credits to businesses that establish or expand qualified facilities in Arizona, including data centers.

Requirements

• Job creation thresholds: In urban areas, the business must create 25 net new qualifying jobs. In rural areas, five net new qualifying jobs must be created.
• There are capital investment thresholds that must be met.
• Investment and job creation must occur within a 12-month period.
• Pre-approval is required before claiming credits.

Benefits

• $3,000 per job per year for up to three years
• If the credit exceeds the tax liability, the unused portion can be carried forward for up to five years

4. Foreign Trade Zone (FTZ) Incentives

Arizona’s Foreign Trade Zone (FTZ) Incentives offer substantial tax benefits that can apply to data center developers, provided the facility is located within a designated FTZ or sub-zone.

Requirements

• The facility must be located within an FTZ or sub-zone designated by the state or local jurisdiction.
• The business must apply for FTZ status through the appropriate local FTZ grantee (e.g., Greater Phoenix FTZ).
• The business must comply with reporting and operational requirements set by the Arizona Commerce Authority and local FTZ administrators.

Benefits

• Businesses can receive up to 72.9% reduction in state real and personal property taxes.
• In some cases, businesses may qualify for up to 80% reduction.
• It applies to both real estate and equipment used in operations.

Why Arizona is an Ideal State for Data Center Development

Arizona has rapidly become one of the most attractive states for data center development, thanks to a unique combination of climate, infrastructure, policy and geography:

• Central location in the Southwest
• Expansive, low-cost land
• Climate advantages include low humidity, 300-plus days of sunshine, and low risk of natural disasters
• Solar infrastructure offering access to clean energy at scale
• Dense fiber infrastructure
• Business-friendly environment
• Skilled workforce and tech ecosystem
• Strong government support for tech and innovation sectors
• Positioned for scalability and future growth