SB1124 - 542R

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 that is used to outfit, operate or benefit a computer data center and component parts, installations, refreshments, replacements and upgrades to this equipment, 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, 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, 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. "Software" means any software that is installed on a computer server within a qualified computer data center.

13. 14. "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. 15. "Tax relief" means the deduction of the gross proceeds of sale or gross income from the sale, use of qualified equipment as prescribed by section 42‑5061, 42‑5159 or 42‑6004 that is installed in a computer data center. END_STATUTE

Sec. 2. Legislative intent

The legislature intends this act as clarifying legislation in support of the broad‑based transaction privilege and use tax exemption for computer data center equipment.

Sec. 3. Retroactivity; refunds

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

B. Any claim for a refund of transaction privilege or use tax based on the retroactive application of section 41-1519, subsection O, paragraph 2, subdivision (d), Arizona Revised Statutes, as amended by this act, and section 41-1519, subsection O, paragraph 13, Arizona Revised Statutes, as added by this act, shall be submitted to the department of revenue on or before December 31, 2020, pursuant to section 42-1118, Arizona Revised Statutes. In addition:

1. A failure to file a claim on or before December 31, 2020 constitutes a waiver of the claim for refund.

2. The aggregate amount of refunds may not exceed $10,000 for claims filed from January 1, 2020 through December 31, 2020.

3. If the aggregate amount of claims ultimately determined to be correct exceeds $10,000, the department of revenue shall reduce each claim proportionately so that the total refund amount equals $10,000.

4. Interest is not allowed or compounded on any refundable amount of claims if paid before July 1, 2020, but if the amount cannot be determined or paid until after June 30, 2020, interest accrues after that date under section 42-1123, Arizona Revised Statutes.

5. A refund claim that is filed before January 1, 2020 or that is not connected to the amendments under this act is not subject to the $10,000 aggregate refund amount.

Sec. 4. Severability

If a provision of this act or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or application of this act that can be given effect without the invalid provision or application, and to this end the provisions of this act are severable.