SB1799 - 572R

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 either the date on which the application was submitted to the authority or a prospective date stated in the application that does not exceed five years after the date on which the application was submitted. 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 that submits an application to the authority after December 31, 2033 2026.

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) $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) $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 $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 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 is 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 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. "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 $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 deductions of the gross proceeds of sale or gross income from the sale, use, installation, assembly, repair or maintenance of computer data center equipment as prescribed by sections 42-5061, 42-5075, 42-5159 and 42-6004 for use at a computer data center. END_STATUTE

Sec. 2. Section 41-1520, Arizona Revised Statutes, is amended to read:

START_STATUTE41-1520. International operations centers; utility relief; certification; revocation; definitions

A. Utility relief is allowed for the owner or operator of an international operations center that is certified pursuant to this section.

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

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

3. An estimate of the total investment the owner or operator or an affiliated entity, including investments made by a third-party entity on behalf of and for the benefit of the owner, operator or affiliated entity, will make, over a three-year period beginning on the date the application is received, in new renewable energy facilities in this state that produce energy for self-consumption by the international operations center using renewable energy resources.

4. The expected location of each of the renewable energy facilities that comprise the total investment estimated in paragraph 3 of this subsection and the earliest date that each facility is expected to be operational.

5. A statement that a portion of the power generated by each renewable energy facility, as required by subsection D, paragraph 4 of this section, is for self-consumption and will be used for international operations center use.

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 international operations center qualifies for the utility relief or provide written reasons for its denial. A failure to approve or deny the application within sixty days after the date of submittal constitutes certification of the international operations center, and the authority shall issue written certification to the owner or operator within fourteen days. The authority shall send a copy of the certification to the department of revenue. The authority shall not certify any new international operations center that submits an application to the authority after December 31, 2026.

D. The owner or operator of the international operations center must achieve all of the following requirements after taking into account the combined investments made by the owner or operator:

1. A minimum annual investment of $100,000,000 in new capital assets, including costs of land, buildings and international operations center equipment in each of ten consecutive taxable years of the owner or operator. Investments greater than $100,000,000 in any taxable year may be carried forward as a credit toward the investment requirement in future years.

2. On or before the tenth anniversary of certification, a minimum investment of at least $1,250,000,000 in new capital assets, including costs of land, buildings and international operations center equipment.

3. An investment by the owner or operator or an affiliated entity, or a third-party entity on behalf of or for the direct benefit of the owner, operator or affiliated entity, of at least $100,000,000 in one or more new renewable energy facilities in this state that produce energy for self-consumption using renewable energy resources. The minimum investment must be completed within a three-year period beginning on the date the initial application is received or by December 31, 2030, whichever is earlier. Construction of the renewable energy facilities shall begin not later than six months after the receipt of the application.

4. The use of a portion of the energy produced at each renewable energy facility for self-consumption in this state. By the fifth year a renewable energy facility is in operation, at least fifty-one percent of the energy produced must be used for self-consumption in this state. Self-consumption includes the power used by related entities if the related entities are directly or indirectly under the same ownership interests that collectively own more than eighty percent. Power that a renewable energy facility transfers to a utility qualifies as self-consumption if the utility is the same utility that provides power to the owner's or operator's international operations center in this state, regardless of whether the owner or operator or an affiliated entity owns or leases the renewable energy facility or the land on which it is located at the time of transfer.

5. The use of power for self-consumption under paragraph 4 of this subsection is for an international operations center in this state. A lessor of an international operations center facility that uses power for self-consumption under paragraph 4 of this subsection satisfies the requirements of this paragraph if the lessee is an international operations center and the power is transferred as part of the lease to the lessee.

E. Within thirty days after the end of each taxable year following certification, and within thirty days after the tenth anniversary of certification, the owner or operator shall furnish the authority written information demonstrating whether the certified international operations center has or has not satisfied the requirements prescribed in subsection D of this section. Until the requirements prescribed in subsection D of this section are met, the owner or operator shall keep detailed records of all capital investment in the international operations center, including costs of land, buildings and international operations center equipment, and all utility relief directly received by the owner or operator.

F. If the authority determines that the requirements of this section have not been satisfied, the authority may revoke the certification of the international operations center and notify the department of revenue in writing. The owner or operator may appeal the revocation. The authority may give special consideration or allow a temporary exception if there is extraordinary hardship due to factors beyond the owner's or operator's control. If certification is revoked, the department of revenue shall order the owner or operator to forfeit further entitlement to utility relief. If the owner or operator fails to make a minimum capital investment of $100,000,000 in a taxable year, taking into account any excess investment amounts carried forward from previous years, the owner or operator may avoid revocation of its certification by paying to the department of revenue within sixty days after the end of the taxable year the amount of the utility relief provided pursuant to this section in that year.

G. Each year after initial certification, on or before the anniversary date of the application specified in subsection B of this section, the owner, operator or affiliated entity must submit to the authority:

1. Documentation of the owner's, operator's or affiliated entity's progress toward the investment required by subsection D, paragraph 3 of this section. This documentation is not required after the authority receives a report stating that the required investment threshold has been reached.

2. Documentation for each renewable energy facility that demonstrates that the required portion of the power generated by each facility is for self-consumption as required by subsection D, paragraph 4 of this section.

H. The authority and the department of revenue shall prescribe forms and procedures as necessary for the purposes of this section.

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

J. Except as provided in subsection F of this section, on certification, the international operations center remains certified unless ownership of the international operations center is sold, conveyed, transferred or otherwise directly or indirectly disposed of to another entity in which the original owner holds less than a controlling interest. For the purposes of this subsection, "controlling interest" means at least eighty percent of the voting shares of a corporation or of the interests in a noncorporate entity.

K. An owner or operator may be composed of a single entity or affiliated entities.

L. If the information required by subsection B, paragraphs 3, 4 and 5 of this section and the documentation required by subsection G of this section were already provided to the department of revenue for the purposes of the credit provided by section 43-1164.05, the owner or operator is not required to provide the information or documentation a second time under this section.

M. For the purposes of this section:

1. "Affiliated entity" means any of the following:

(a) An entity that is included in the same Arizona income tax return as the owner or operator of the international operations center.

(b) Any entity in which the owner or operator of the international operations center is entitled to a distributive share of the entity's income or loss.

(c) Any entity, including a single-member limited liability company, that is disregarded for federal income tax purposes and is directly or indirectly owned wholly or in part by the owner or operator of the international operations center.

2. "Biomass" means organic material that is available on a renewable or recurring basis, including:

(a) Forest-related materials, including mill residues, logging residues, forest thinnings, slash, brush, low-commercial value materials or undesirable species, salt cedar and other phreatophyte or woody vegetation removed from river basins or watersheds and woody material harvested for the purpose of forest fire fuel reduction or forest health and watershed improvement.

(b) Agricultural-related materials, including orchard trees, vineyard, grain or crop residues, including straws and stover, aquatic plants and agricultural processed coproducts and waste products, including fats, oils, greases, whey and lactose.

(d) Solid woody waste materials, including landscape or right-of-way tree trimmings, rangeland maintenance residues, waste pallets, crates and manufacturing, construction and demolition wood wastes, but excluding pressure-treated, chemically treated or painted wood wastes and wood contaminated with plastic.

(e) Crops and trees planted for the purpose of being used to produce energy.

(f) Landfill gas, wastewater treatment gas and biosolids, including organic waste by-products generated during the wastewater treatment process.

3. "International operations center" means a facility or connected facilities under the same ownership that are subject to the investment thresholds under subsection D of this section and that self-consume renewable energy from a qualified facility pursuant to subsection D of this section.

4. "Renewable energy facility" means a facility in which the owner, operator or affiliated entity, or a third-party entity on behalf of and for the benefit of the taxpayer, owner, operator or affiliated entity, invested at least $30,000,000, that has at least twenty megawatts of generating capacity or a minimum typical annual generation of forty thousand megawatt hours, that is located on land in this state and that produces electricity using a renewable energy resource.

5. "Renewable energy resource" means a resource that generates electricity by using only the following energy sources:

(a) Solar light.

(b) Solar heat.

(d) Biomass, including fuel cells supplied directly or indirectly with biomass generated fuels.

(e) Battery storage that is independent from or coupled with other sources.

6. "Utility relief" means the mitigation of the tax burden on the retail purchaser of electricity or natural gas through the application of section 42-5063, subsection C, paragraph 7, section 42-5159, subsection G, paragraph 2 and section 42-6012, paragraph 2.END_STATUTE

Sec. 3. Requirements for enactment; two-thirds vote

Pursuant to article IX, section 22, Constitution of Arizona, this act is effective only on the affirmative vote of at least two-thirds of the members of each house of the legislature and is effective immediately on the signature of the governor or, if the governor vetoes this act, on the subsequent affirmative vote of at least three-fourths of the members of each house of the legislature.