SB1366 - 541R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 41-1519, Arizona Revised Statutes, is amended to read:

START_STATUTE41-1519. Computer data center tax relief; definitions

A. From and after August 31, 2013, Tax relief is allowed for the owner or operator of a computer data center certified pursuant to this section. The same tax relief is allowed for qualified colocation tenants of the computer data center. All tax relief applies during the qualification period.

B. To qualify for the tax relief, the owner or operator shall submit to the authority an application on a form prescribed by the authority that includes all of the following:

1. The owner's or operator's name, address and telephone number.

2. The address of the site where the facility is or will be located, including, if applicable, information sufficient to identify the specific portion or portions of the facility composing the computer data center.

3. If the computer data center is to qualify under subsection E, paragraph 1 of this section, both of the following:

(a) The anticipated investment associated with the computer data center for which the tax relief is being sought and whether the computer data center is anticipated to qualify as a sustainable redevelopment project.

(b) An affirmation, signed by an authorized executive representing the owner or operator, that the computer data center is expected to satisfy one of the certification requirements prescribed in subsection E, paragraph 1 of this section and that the computer data center will not violate subsection M of this section.

4. If the computer data center is to qualify under subsection E, paragraph 2 of this section, an affirmation, signed by an authorized executive representing the owner or operator, that the computer data center has satisfied the certification requirements prescribed in subsection E, paragraph 2 of this section, whether the computer data center qualifies as a sustainable redevelopment project and that the computer data center will not violate subsection M of this section.

C. Within sixty days after receiving a complete and correct application, the authority shall review the application and either issue a written certification that the computer data center qualifies for the tax relief or provide written reasons for its denial. Failure to approve or deny the application within sixty days after the date the owner or operator submits the application to the authority constitutes approval of the computer data center, and the authority shall issue written certification to the owner or operator within fourteen days. The effective date of the certification is the date on which the application was submitted to the authority. The authority shall send a copy of the certification, including its effective date, to the department of revenue. The authority shall not certify any new computer data center after December 31, 2023.

D. An owner or operator may separate a facility into one or more computer data centers, which may each receive a separate certification if each computer data center individually meets the requirements prescribed in subsection E of this section. A portion of a facility or an article of computer data center equipment shall not be deemed to be a part of more than one computer data center. The owner or operator may aggregate one or more of the parcels, buildings, condominiums or modular data centers in a facility into a single computer data center if, in the aggregate, the parcels, buildings, condominiums and modular data centers meet the requirements of subsection E of this section.

E. A computer data center must meet one of the following requirements after taking into account the combined investments made by the owner, operator or qualified colocation tenants of a computer data center:

1. On or before the fifth anniversary of certification, the computer data center creates a minimum investment of at least:

(a) Twenty‑five million dollars $25,000,000 of new investment, including costs of land, buildings, improvements, modular data centers and computer data center equipment, whether owned or leased or paid for pursuant to a right to use agreement, if the computer data center is located in a county with a population of eight hundred thousand or less persons.

(b) Fifty million dollars $50,000,000 of new investment, including costs of land, buildings, improvements, modular data centers and computer data center equipment, whether owned or leased or paid for pursuant to a right to use agreement, if the computer data center is located in a county with a population of more than eight hundred thousand persons.

2. During the seventy‑two months immediately before September 1, 2013, the computer data center created an investment of at least two hundred fifty million dollars $250,000,000, including costs of land, buildings, improvements, modular data centers and computer data center equipment, whether owned or leased or paid for pursuant to a right to use agreement.

F. On or before the fifth anniversary of the certification of a new computer data center, the owner or operator shall notify the authority in writing that the computer data center for which the certification is requested has or has not satisfied the requirements prescribed in subsection E, paragraph 1 of this section. Until a new computer data center satisfies the requirements prescribed in subsection E, paragraph 1 of this section, the owner or operator shall keep detailed records of all investment created by the new computer data center, including costs of land, buildings, improvements, modular data centers and computer data center equipment, and all tax relief directly received by the owner or operator. This subsection does not apply to an existing computer data center.

G. If the authority determines that:

1. A new computer data center that is certified under subsection E, paragraph 1 of this section has not complied with the requirements and time periods prescribed by subsection E, paragraph 1 of this section, the authority shall revoke the computer data center's certification. If the certification is revoked, the qualification period of any owner, operator or qualified colocation tenant of the computer data center automatically terminates, and the department of revenue may recapture all or part of the tax relief provided directly to the owners and operators. A qualified colocation tenant is not subject to recapture of any part of tax relief received pursuant to this section, except that a contributing qualified colocation tenant may be subject to recapture if they are it is located in a computer data center that is certified from and after August 31, 2016. An owner or operator may appeal any revocation under this paragraph pursuant to chapter 6, article 10 of this title.

2. There has been a violation of subsection M of this section with respect to a computer data center:

(a) The authority shall revoke the computer data center's certification and, if revoked, the qualification period of any owner, operator or qualified colocation tenant of the computer data center automatically terminates.

(b) The department of revenue may not recapture any tax relief provided directly to the owner, operator or qualified colocation tenant before the date of revocation.

H. The authority and the department of revenue shall adopt rules and prescribe forms and procedures as necessary for the purposes of this section. The authority and the department shall collaborate in adopting rules as necessary to avoid duplication and inconsistencies while accomplishing the purposes of this section. The authority has exclusive authority over issues related to certification, including determinations as to whether a computer data center has satisfied the requirements of subsection E of this section, constitutes a qualified sustainable redevelopment project or has committed a violation of this section. The department of revenue has exclusive authority over the administration of tax relief.

I. Proprietary business information contained in the application described in subsection B of this section, the written notice described in subsection F of this section and the list described in subsection J of this section are confidential and shall not be disclosed to the public except that the information shall be transmitted to the department of revenue. The authority or the department may disclose the name of a computer data center that has been certified pursuant to this section.

J. The owner or operator shall provide the authority and the department of revenue with a list of qualified colocation tenants, including the commencement and expiration dates of each qualified colocation tenant's agreement to use or occupy all or part of the computer data center, and shall notify the authority and the department of any changes within thirty days. The failure of an owner or operator to provide the list or notify the authority and department of revenue of changes within the required time are not grounds for termination of the computer data center's certification, but may preclude unlisted colocation tenants from receiving tax relief until the list is provided or updated.

K. Except as provided in subsection G of this section, if a computer data center has been certified, the certification remains in effect, even in the event of a future transfer, sale or disposition, directly or indirectly, of the computer data center.

L. For the purposes of qualifying and continuing as a sustainable redevelopment project:

1. After receiving certification, an owner may substantially demolish all or part of an existing building to the extent reasonably necessary to accommodate future computer data center use, and the demolition is not cause for loss of certification as a sustainable redevelopment project. An existing building that has been substantially demolished before certification is not eligible to qualify as a sustainable redevelopment project.

2. An owner or operator may expand the boundaries of a certified computer data center by increasing the size of an existing building within a sustainable redevelopment project or by building additional improvements in an unlimited manner to the extent the expansion is constructed on the same parcel of land on which the original sustainable redevelopment project is located or on a contiguous parcel, regardless of whether the contiguous parcel was within the original description of the boundaries of the certified computer data center. Expansion activities do not prevent a facility from maintaining its classification as a sustainable redevelopment project.

3. All construction activities and investments related to demolition and expansion activities described in this subsection are considered to be a part of the sustainable redevelopment project.

M. This section does not allow a computer data center to do either of the following:

1. Generate electricity for resale purposes.

2. Generate, provide or sell electricity outside of the computer data center.

N. The owner or operator may be a single individual or entity or multiple affiliated entities.

O. For the purposes of this section:

1. "Computer data center" means all or part of a facility that may be composed of multiple businesses or owners, that is or will be predominantly used to house working servers and that may have uninterruptible energy supply or generator backup power, or both, cooling systems, towers and other temperature control infrastructure.

2. "Computer data center equipment" means equipment or property that is used to outfit, operate or benefit a computer data center and component parts, installations, refreshments, replacements and upgrades to this equipment or property, regardless of whether affixed to or incorporated into real property, and whether owned, leased, licensed or used by the owner or operator pursuant to a contract for the right to use the equipment or property, including:

(a) All equipment necessary for the transformation, generation, distribution or management of electricity that is required to operate computer server equipment, including generators, uninterruptible energy, supplies, conduit, gaseous fuel piping, cabling, duct banks, switches, switchboards, batteries and testing equipment.

(b) All equipment necessary to cool and maintain a controlled environment for the operation of the computer server and other components of the computer data center, including mechanical equipment, refrigerant piping, gaseous fuel piping, adiabatic and free cooling systems, cooling towers, water softeners, air handling units, indoor direct exchange units, fans, ducting and filters.

(c) All water conservation systems, including facilities or mechanisms that are designed to collect, conserve and reuse water.

(d) All enabling software, software maintenance, software support, computer server equipment, chassis, networking equipment, switches, racks, cabling, trays and conduit.

(e) All monitoring equipment and security systems.

(f) Modular data centers and preassembled components of any item described in this paragraph, including components used in the manufacturing of modular data centers.

(g) Other tangible personal property that is essential to the operations of a computer data center.

3. "Contributing qualified colocation tenant" means a qualified colocation tenant that is an operator or that had its anticipated investment included in an application for certification for the purposes of satisfying subsection E, paragraph 1 of this section.

4. "Existing building" means any existing vertical building improvement located at a facility used for commercial purposes at the time of its acquisition by an owner, but not including single family residential structures, barns or other agricultural structures.

5. "Existing computer data center" means a computer data center that is certified under subsection E, paragraph 2 of this section.

6. "Facility" means one or more parcels of land in this state and any structures and personal property contained on the land.

7. "Investment" means all monies spent to acquire a facility regardless of prior use and all monies spent to construct or expand a computer data center, including costs of land, buildings, improvements, modular data centers and computer data center equipment. For new data centers, investment includes all costs incurred on or after a date that is thirty days before the date the application is submitted to the authority.

8. "Modular data center" means a portable system of information technology, climate control, energy supply and energy distribution machinery, equipment and related tangible personal property contained in an intermodal freight container or similar structure.

9. "New computer data center" means a computer data center that is certified under subsection E, paragraph 1 of this section.

10. "Operator" means any individual or entity that operates a computer data center as an operator or lessor or pursuant to a contract with an owner or lessor. Operator includes a licensed property management company, a property lessor or any other individual or entity responsible for the control, oversight or maintenance of a facility.

11. "Qualification period" means:

(a) With respect to the owner or operator of a computer data center, a period of time beginning on the effective date of the computer data center's certification and expiring at the end of the tenth full calendar year following the calendar year containing the effective date, except, if a computer data center is a sustainable redevelopment project, qualification period means a period of time beginning on the effective date of the computer data center's certification and expiring at the end of the twentieth full calendar year following the calendar year containing the effective date.

(b) With respect to the qualified colocation tenant of the owner or operator of a computer data center certified under this section, a period of time beginning on the date that the qualified colocation tenant enters into an agreement concerning the use or occupancy of the computer data center and expiring at the earlier of the expiration of the term of the agreement or the tenth full calendar year following the calendar year in which the qualified colocation tenant entered into the agreement, except, if a computer data center is a sustainable redevelopment project, qualification period means a period of time beginning on the date that the qualified colocation tenant enters into an agreement concerning the use or occupancy of the computer data center and expiring at the earlier of the expiration of the term of the agreement or the twentieth full calendar year following the calendar year in which the tenant entered into the agreement. The qualification period for a qualified colocation tenant may not extend beyond the qualification period for the owner or operator of the computer data center.

12. "Qualified colocation tenant" means an entity that contracts with the owner, the operator or another qualified colocation tenant of a computer data center, that is certified pursuant to this section to use or occupy all or part of the computer data center for at least five hundred kilowatts per month for a period of two or more years.

13. "Sustainable redevelopment project" means a computer data center that satisfies the requirements in subsection E of this section and is either:

(a) A newly constructed data center, with at least a two hundred million dollar $200,000,000 investment, that attains certification under the energy star or green globes standard, the leadership in energy and environmental design green building rating standard developed by the United States green building council or an equivalent green building standard and was not previously certified under these standards.

(b) A data center that occupies an existing facility that either:

(i) Was at least fifty percent vacant for six of the twelve consecutive months before the acquisition by purchase or lease of or with respect to the facility.

(ii) Attains certification under the energy star or green globes standard, the leadership in energy and environmental design green building rating standard developed by the United States green building council or an equivalent green building standard and was not previously certified under these standards.

14. "Tax relief" means the deduction of the gross proceeds of sale or gross income from the sale, use or rental of qualified equipment as prescribed by section 42‑5061, 42-5071, 42‑5159 or 42‑6004 that is installed in a computer data center. END_STATUTE

Sec. 2. Section 42-5071, Arizona Revised Statutes, is amended to read:

START_STATUTE42-5071. Personal property rental classification; definitions

A. The personal property rental classification is comprised of the business of leasing or renting tangible personal property for a consideration. The tax does not apply to:

1. Leasing or renting films, tapes or slides used by theaters or movies, which are engaged in business under the amusement classification, or used by television stations or radio stations.

2. Activities engaged in by the Arizona exposition and state fair board or county fair commissions in connection with events sponsored by such entities.

3. Leasing or renting tangible personal property by a parent corporation to a subsidiary corporation or by a subsidiary corporation to another subsidiary of the same parent corporation if taxes were paid under this chapter on the gross proceeds or gross income accruing from the initial sale of the tangible personal property. For the purposes of this paragraph, "subsidiary" means a corporation of which at least eighty percent of the voting shares are owned by the parent corporation.

4. Operating coin‑operated washing, drying and dry cleaning machines or coin‑operated car washing machines at establishments for the use of such machines.

5. Leasing or renting tangible personal property for incorporation into or comprising any part of a qualified environmental technology facility as described in section 41‑1514.02. This paragraph shall apply for ten full consecutive calendar or fiscal years following the initial lease or rental by each qualified environmental technology manufacturer, producer or processor.

6. Leasing or renting aircraft, flight simulators or similar training equipment to students or staff by nonprofit, accredited educational institutions that offer associate or baccalaureate degrees in aviation or aerospace related fields.

7. Leasing or renting photographs, transparencies or other creative works used by this state on internet websites, in magazines or in other publications that encourage tourism.

8. Leasing or renting certified ignition interlock devices installed pursuant to the requirements prescribed by section 28‑1461. For the purposes of this paragraph, "certified ignition interlock device" has the same meaning prescribed in section 28‑1301.

9. The leasing or renting of space to make attachments to utility poles, as follows:

(a) By a person that is engaged in business under section 42‑5063 or 42‑5064 or that is a cable operator.

(b) To a person that is engaged in business under section 42‑5063 or 42‑5064 or that is a cable operator.

10. Leasing or renting billboards that are designed, intended or used to advertise or inform and that are visible from any street, road or other highway.

B. The tax base for the personal property rental classification is the gross proceeds of sales or gross income derived from the business, but the gross proceeds of sales or gross income derived from the following shall be deducted from the tax base:

1. Reimbursements by the lessee to the lessor of a motor vehicle for payments by the lessor of the applicable fees and taxes imposed by sections 28‑2003, 28‑2352, 28‑2402, 28‑2481 and 28‑5801, title 28, chapter 15, article 2 and article IX, section 11, Constitution of Arizona, to the extent such amounts are separately identified as such fees and taxes and are billed to the lessee.

2. Leases or rentals of tangible personal property that, if it had been purchased instead of leased or rented by the lessee, would have been exempt under:

(a) Section 42‑5061, subsection A, paragraph 8, 9, 12, 13, 25, 29, 49 or 53.

(b) Section 42‑5061, subsection B, except that a lease or rental of new machinery or equipment is not exempt pursuant to section 42‑5061, subsection B, paragraph 13 if the lease is for less than two years.

(d) Section 42‑5061, subsection M.

3. Motor vehicle fuel and use fuel that are subject to a tax imposed under title 28, chapter 16, article 1, sales of use fuel to a holder of a valid single trip use fuel tax permit issued under section 28‑5739 and sales of aviation fuel that are subject to the tax imposed under section 28‑8344.

4. Leasing or renting a motor vehicle subject to and on which the fee has been paid under title 28, chapter 16, article 4.

5. Amounts received by a motor vehicle dealer for the first month of a lease payment if the lease and the lease payment for the first month of the lease are transferred to a third‑party leasing company.

6. Computer data center equipment leased or rented to the owner, operator or qualified colocation tenant of a computer data center that is certified by the Arizona commerce authority pursuant to section 41-1519 or an authorized agent of the owner, operator or qualified colocation tenant during the qualification period for use in the qualified computer data center. For the purposes of this paragraph, "computer data center", "computer data center equipment", "qualification period" and "qualified colocation tenant" have the same meanings prescribed in section 41-1519.

C. Sales of tangible personal property to be leased or rented to a person engaged in a business classified under the personal property rental classification are deemed to be resale sales.

D. In computing the tax base, the gross proceeds of sales or gross income from the lease or rental of a motor vehicle does not include any amount attributable to the car rental surcharge under section 5‑839, 28‑5810 or 48‑4234.

E. Until December 31, 1988, leasing or renting animals for recreational purposes is exempt from the tax imposed by this section. Beginning January 1, 1989, the gross proceeds or gross income from leasing or renting animals for recreational purposes is subject to taxation under this section. Tax liabilities, penalties and interest paid for taxable periods before January 1, 1989 shall not be refunded unless the taxpayer requesting the refund provides proof satisfactory to the department that the monies paid as taxes will be returned to the customer.

F. For the purposes of this section:

1. "Cable operator" has the same meaning prescribed by in section 9‑505.

2. "Utility pole" means any wooden, metal or other pole used for utility purposes and the pole's appurtenances that are attached or authorized for attachment by the person controlling the pole. END_STATUTE

Sec. 3. Retroactivity

This act applies retroactively to from and after September 12, 2013.