Arizona Adopts Updated Data Center Economic Incentives

In a boost for the data center market in Phoenix, Gov. Doug Ducey has signed legislation that reauthorizes and strengthens Arizona’s tax incentive package for data centers, extending tax breaks through 2033. The update to the incentives provides extended visibility into the cost of operating data centers in the state, which is crucial factor for companies considering Phoenix versus other markets in a site selection process.

A recent report by Mangum Economics estimates that in 2020, data centers in Arizona created $539 million in economic output from construction and operations, including at least $85 million in state and local tax revenue. as well as supporting 2,020 construction jobs and 530 full-time data center operations positions.

Arizona first enacted data center incentives in 2013 to increase its competitiveness in attracting data center investment and expansion. Since then, at least 20 other states have implemented new incentives or sweetened existing ones, with at least 34 state now offering tax breaks to attract new data center projects.

The new legislation, known as HB2649, takes several steps to position Arizona for future data center growth:

• The bill extends Arizona’s tax incentives for an additional 10 years, through 2033.
• It clarifies the equipment that qualifies for incentives on installation or maintenance, addressing confusion around this issue among contractors which led some to collect and remit the tax.
• Allows an applicant to set an effective date of up to five years from date of filing, so the timing of incentive benefit more closely track the opening and operations of a facility.

As noted in a new DCF special report on the Phoenix data center market, the region is home to 1.97 million square feet (SF) of commissioned data center space, representing 295 megawatts (MW) of commissioned power at the end of 2020, according to market research from datacenterHawk. That makes Phoenix the fifth-largest market for data center capacity in the U.S., trailing Northern Virginia, Silicon Valley, Dallas and Chicago.

Significantly, data center developers plan to build approximately 1.6 gigawatts (GWs) of power and nearly 8.8 million SF of data center space in Phoenix in coming years. Many site selection processes consider Phoenix alongside other Western U.S. markets such as Las Vegas, Reno, Salt Lake City or Hillsboro, Oregon.  All those markets are benefiting from data center users seeking alternatives to California, as well as trends in the architecture of hyperscale growth, as cloud platforms seek locations for availability zones to spread capacity across regions.

The Arizona data center industry organized to seek an extension of the incentives, noting that some large customers require clarity on their costs beyond 2023, the scheduled sunset of the existing package. The Data Center Coalition and B3 Strategies worked to support the legislation, which was  sponsored by Arizona House Majority Leader Ben Toma.

The industry also worked with Mangum Economics on an analysis of the economic impact of data centers in Arizona in 2020, which included the creation of:

• 2,020 construction jobs
• $132.4 million in associated construction pay and benefits
• 530 full-time-equivalent data center operations jobs
• $42 million in associated data center employee pay and benefits
• $539.1 million in total economic output from construction and operations combined.

The survey was sponsored by Aligned, Iron Mountain, Compass Datacenters, QTS Data Centers and CloudHQ.