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ARIZONA STATE SENATE
Fifty-Fourth Legislature, Second Regular Session
commerce authority; data center equipment
Purpose
Expands the definition of computer data center equipment to include all software and defines software. Entitles computer data centers (CDCs) to certain tax exemptions for software encompassed under the new definitions and establishes refund claim guidelines.
Background
In 2013, the Legislature established the CDC Program. The Arizona Commerce Authority (ACA) operates the CDC Program in conjunction with the Arizona Department of Revenue (ADOR) to encourage CDC operation and expansion in Arizona. CDCs may qualify for transaction privilege tax (TPT) and use tax exemptions on eligible purchases of CDC equipment for up to 10 years following certification of the CDC, or up to 20 years if the CDC qualifies as a sustainable redevelopment project.
TPT and use tax exemptions are provided if: 1) an applicant submits an application for CDC certification and receives a letter of certification from the ACA; 2) a CDC owner, operator or qualified colocation tenant collectively satisfy the applicable capital investment threshold in a timely manner; 3) an applicant pays required fees; and 4) all relevant parties are registered in the E-Verify system.
A CDC is a facility that is predominately used to house working servers for one or more businesses or owners. A CDC may have uninterruptible energy supply or backup generator power as well as temperature control infrastructure. CDC equipment is used to outfit, operate or benefit CDCs and component parts, installations, refreshments, replacements and upgrades to CDC equipment, regardless of whether affixed to or incorporated into real property, and whether owned, leased or used by an owner or operator pursuant to a contract for the right to use the equipment, including all enabling software (A.R.S. §§ 23-214 and 41-1519).
There may be a one-time negative fiscal impact to the state General Fund if refund claims are submitted for previous tax years. In 2019, the Joint Legislative Budget Committee estimated on a similar measure that the exemption of all software expenses would result in an ongoing fiscal impact of between $1,200,000 and $6,900,000 to the state General Fund (JLBC fiscal note).
Provisions
1. Expands the definition of CDC equipment to include:
a) all software, rather than only enabling software; and
b) equipment that is licensed by an owner or operator pursuant to a contract for the right to use the equipment.
2. Defines software as any software that is installed on a computer server within a qualified CDC.
3. Requires a CDC to submit a claim for refund of TPT or use tax on CDC software applicable under the new definitions of CDC equipment and software to ADOR by December 31, 2020, and outlines the following refund claim guidelines:
a) failure to file a claim by the deadline constitutes a waiver of the claim for refund;
b) the maximum aggregate amount of refunds for claims filed from January 1, 2020, through December 31, 2020, is $10,000;
c) if an aggregate amount of claims exceeds $10,000, ADOR will reduce each claim proportionately so the total refund amount is $10,000;
d) interest is not allowed or compounded on any refundable amount of claims paid before July 1, 2020;
e) if an amount of claims cannot be determined or paid until after June 30, 2020, interest accrues after that date; and
f) the $10,000 aggregate refund amount does not apply to refund claims filed before January 1, 2020, or refund claims that are not in connection with definition expansion.
4. Expands the definition of tax relief to include deductions of gross proceeds of sale or gross income from the use, rather than only the sale, of qualified equipment that is installed in a CDC.
5. Contains a statement of legislative intent and a severability clause.
6. Makes technical and conforming changes.
7. Becomes effective on the general effective date, retroactive to September 13, 2013.
Prepared by Senate Research
January 27, 2020
MG/AB/gs