Arizona property tax and local tax breaks for AI data centers

In short

Arizona does not have a property tax exemption that directly reduces the tax bill on an AI data center’s buildings or land. A.R.S. § 41-1519, Arizona Commerce Authority, Computer Data Center Program. Instead, developers and owners use a combination of three tools. The Computer Data Center (CDC) program exempts qualifying equipment from state and local transaction privilege tax (TPT) and use tax for 10 or 20 years if the project meets investment thresholds and gets certified by the Arizona Commerce Authority. A.R.S. § 41-1519, A.R.S. § 42-5061(B)(23). The Government Property Lease Excise Tax (GPLET) can replace property tax with a square footage based excise tax for up to 25 years, with an eight year abatement possible in a central business district within a redevelopment area. A.R.S. §§ 42-6201–6210. And a 2022 state law values qualifying business personal property at 2.5 percent of its cost, shrinking personal property tax on servers and cooling equipment by roughly 90 percent. A.R.S. § 42-13054, HB 2822 analysis, Arizona Commerce Authority, GPEC analysis. Two bills introduced in early 2026, HB 2119 and SB 1799, propose to end new CDC certifications after December 31, 2026 instead of the current 2033 deadline. HB 2119 (2026), SB 1799 (2026), SB 1799 (2026), SB 1799 (2026), SB 1799 (2026), SB 1799 (2026), SB 1799 (2026). Developers who want the CDC tax break should apply soon.

Does Arizona offer a property tax exemption for AI data centers?

Arizona law does not contain a stand alone property tax exemption that reduces the assessed value or tax rate on an AI data center’s real property (the land and building). Instead, developers and owners can lower property taxes through three separate mechanisms. Each one works differently and can be combined, though there are some interactions to watch.

Foreign Trade Zone property classification

If an AI data center is located inside a federally designated Foreign Trade Zone (FTZ) that is activated for foreign trade zone use by the district director of the United States Customs Service, its real and personal property is classified as Class Six property under Arizona law. A.R.S. § 42-12006(2). That classification comes with a much lower assessment ratio than a standard commercial property. The result is a reduction in state property taxes of up to 72.9 percent. ACA Foreign Trade Zone page. Stream Data Centers glossary.

Arizona offers additional property tax benefits for FTZ companies through a special property classification, assessing FTZ real and personal property as Class Six at five percent of full cash value under A.R.S. 42-12006(2) and A.R.S. 42-15006. GMFTZ, AZ DOR. There are seven FTZs in Arizona, with three in the Greater Phoenix area, including FTZ 277 in Western Maricopa County. ADOR FTZ Assessment Procedures, GPEC, FTZ Board. To use the FTZ benefit, the site must either already be inside an existing FTZ boundary or the developer must petition to expand the zone to cover the property. The process is handled through the U.S. Foreign Trade Zones Board and local grantee organizations.

It is not an automatic benefit. The developer must factor in the upfront cost and time of obtaining FTZ status. But the long term property tax savings on both real estate and personal property can be significant, especially for large campuses.

Government Property Lease Excise Tax (GPLET)

GPLET is a municipal tool that replaces the regular property tax on a building with an excise tax based on the structure’s gross square footage. A.R.S. §§ 42-6201 through 42-6210. It works like this. The land and any improvements are conveyed (often for a nominal amount) to a government entity, usually a city. That government entity then enters a long term lease with the private developer. Because the government now owns the property, it is exempt from county property tax. Instead, the developer pays an excise tax to the government based on the building’s square feet, not its market value.

For a lease that is subject to subsection B of this section, the term cannot exceed 25 years. A.R.S. § 42-6206(C). If a government property improvement sits in a single central business district and is located entirely within a slum or blighted area designated under title 36, chapter 12, article 3, is subject to a lease or development agreement entered into on or after April 1, 1985, and will at least double the property value, the city or town may abate the GPLET excise tax for the first eight years after the building receives its certificate of occupancy. A.R.S. § 42-6209. During that abatement period, the developer pays nothing under GPLET. Because the 2017 reforms cap the GPLET lease term at eight years when the abatement is applied, the property returns to the full property tax rolls after the abatement period.

A real world example helps show the numbers. In July 2019, the Mesa City Council approved a development agreement for Google’s $1 billion AI data center project, known as Project Red Hawk. It spans 750,000 square feet on 187 acres. The city used GPLET to provide an estimated $16 million property tax break over 25 years. Even with that break, the city projected it would collect $33 million in excise taxes and another $28 million in other local taxes over the period. When you add state and county taxes and electricity sales taxes (assuming a 150 megawatt build out), the total projected tax revenue to all governments was $156 million over 25 years. Data Center Dynamics.

GPLET is not automatic. It requires a direct negotiation and agreement between the developer and the municipality. The municipality must be willing to convey the property into government ownership and lease it back. The 2017 reforms tightened GPLET so that when an abatement is involved, the lease is effectively limited to eight years of benefit before the property goes back on the tax rolls. Tax alert. Nevertheless, for a large AI data center, the nine figure savings can make a project viable.

Additional depreciation for business personal property

A 2022 state law, codified at A.R.S. § 42-13054, changed how Arizona values business personal property for property tax purposes. Business personal property includes servers, networking gear, cooling equipment, generators, and other movable equipment used in a business. Before 2022, Arizona depreciated that property over its useful life, so the taxable value dropped each year. The new rule is far simpler and more generous. Any qualifying business personal property first classified in Arizona in or after 2022 is valued at 2.5 percent of its original acquisition cost, immediately and for every year after that. A.R.S. § 42-13054.

That means if a developer buys $100 million of servers, the taxable value for county property tax is only $2.5 million every year. The Arizona Commerce Authority says the rule reduces personal property tax liability by 90 percent or more. ACA Additional Depreciation page.

This is not a waiver or an exemption. It is a flat valuation formula that applies to all business personal property, regardless of whether the facility is a CDC certified project or not. There is also a favorable interaction if the same equipment sits in a Foreign Trade Zone. The 2.5 percent valuation factor applies to Class One, Class Two, and Class Six property alike, so FTZ equipment classified as Class Six still receives the 2.5 percent valuation. A.R.S. § 42-13054(B)(4) On top of that, Foreign Trade Zone property is classified as Class Six and assessed at a 5 percent ratio rather than the higher standard commercial ratio, so the two benefits stack in the taxpayer’s favor. A.R.S. § 42-12006, GPEC HB2822 The one tradeoff is that FTZ business personal property is not eligible for the separate property tax exemption under A.R.S. § 42-11127(A). ADOR Foreign-Trade Zones

What is the Computer Data Center program and what local tax breaks does it provide?

The Computer Data Center program, created by A.R.S. § 41-1519, is the centerpiece of Arizona’s tax incentives for AI data centers. It is not a property tax program. It is a sales tax (TPT) and use tax exemption on qualifying computer data center equipment. But it also indirectly boosts the economics of a project, because avoiding tax on expensive equipment reduces the overall cost.

TPT stands for transaction privilege tax, which is Arizona’s version of a sales tax. The state imposes a base rate, and counties and cities add their own privilege taxes on top. Combined rates range from 5.6 percent to 11.2 percent. Avalara Arizona rates. TaxCloud Arizona guide. In Phoenix, after a rate increase that took effect July 1, 2025, the combined TPT rate is approximately 9.1 percent. ADOR TPT Update, June 2025, Phoenix combined rate chart, July 2025, Phoenix combined rate chart. So for a developer buying $200 million of servers, the TPT bill could be $17 million or more if not exempt.

Under the CDC program, certified owners, operators, and qualified colocation tenants do not pay state, county, or city TPT on purchases of CDC equipment during the qualification period. A.R.S. § 42-5061(B)(23). A.R.S. § 42-6004. The use tax exemption mirrors the TPT exemption. A.R.S. § 42-5159(B)(24), A.R.S. § 42-5061(B)(23). What is exempted is defined broadly. Computer data center equipment includes servers, component parts, installations, replacements, upgrades, and items that are affixed to real property, like cooling towers. It means equipment that is used to outfit, operate or benefit a computer data center, including power equipment, cooling equipment, water conservation systems, enabling software, computer server equipment, networking equipment, monitoring equipment, security systems, modular data centers, and other tangible personal property essential to the operations of a computer data center. A.R.S. § 41-1519(O)(2).

To get this benefit, the project must first earn a certification from the Arizona Commerce Authority (ACA). The ACA reviews applications and has 60 days to approve or deny. If it does not act on a complete and correct application within 60 days after it is submitted, the application is automatically approved, and the ACA must issue a written certification within 14 days after that. A.R.S. § 41-1519(C). The certification deadline for new applications is currently December 31, 2033, but that date is at risk as discussed below.

How much investment does a project need to qualify?

The CDC program sets different minimum investment thresholds depending on the project’s location and type. All thresholds must be met within five years after the ACA certifies the project. If the project fails to meet its threshold, the ACA shall revoke the certification. On revocation the qualification period automatically terminates, and the Arizona Department of Revenue may recapture some or all of the tax relief from the owners and operators. A.R.S. § 41-1519(G)(1). Colocation tenants are generally not subject to recapture.

Here are the main thresholds.

Additionally, a colocation tenant can claim its own TPT exemption on equipment it buys, as long as the overall project is a certified CDC and the tenant contracts for at least 500 kilowatts per month with a contract term of two years or more. A.R.S. § 41-1519(A), (O)(12). That makes the program useful for multi tenant facilities.

How long does the exemption last?

The exemption period, called the qualification period, starts the calendar year after the ACA certifies the project and runs for a fixed number of full calendar years. The standard period is 10 years. A.R.S. § 41-1519. If the project qualifies as a sustainable redevelopment project, the period doubles to 20 years. A.R.S. § 41-1519(O)(11). So a standard CDC certified in July 2026 would be exempt from TPT on equipment bought from January 1, 2027 through December 31, 2036. A sustainable redevelopment project certified in the same year would be exempt through 2046.

This long window is important for an AI data center that refreshes its servers every three to five years. Over 10 or 20 years, the cumulative TPT savings can reach tens of millions of dollars.

What is a sustainable redevelopment project?

Arizona wants to steer new development toward either existing vacant buildings or new projects that meet high environmental standards. So the statute creates a special category called a sustainable redevelopment project with the longer 20 year qualification period.

There are two paths to qualify.

1. Reuse of an existing facility. The developer acquires a building that was at least 50 percent vacant for six of the twelve consecutive months before the acquisition, and uses it as the CDC. This rewards taking over old industrial or commercial space. A.R.S. § 41-1519(O)(13)(b)(i).
2. Greenfield SRP CDC. A newly constructed AI data center that invests at least $200 million and, earns a green building certification such as LEED, Energy Star, or Green Globes, which under the ACA program must occur within five years of the CDC’s certification. A.R.S. § 41-1519(O)(13)(a), ACA Computer Data Center Program.

Choosing the sustainable redevelopment track means giving up the lower $25 or $50 million investment thresholds and committing to $200 million or more, plus meeting the green building standard. In return, the project gets a 20 year exemption, which for a large campus is often worth far more than the higher upfront investment.

What other tax incentives are available?

Beyond the CDC equipment TPT exemption and property tax mechanisms, Arizona offers two more incentives that can benefit AI data center projects.

Qualified Facility Tax Credit

This is a refundable income tax credit, meaning if the credit exceeds the company’s income tax liability, Arizona sends a check for the difference. It is available for new or expanding facilities that meet certain capital investment and job creation targets. A.R.S. § 41-1512. The credit equals the lesser of these three amounts.

• 10 percent of the qualifying capital investment.
• $20,000 per net new job, or $30,000 per job if the total investment exceeds $2 billion.
• $30 million per taxpayer per year.

The credit must be claimed in five equal annual installments. To qualify, a project must invest at least $250,000 and create a certain number of jobs. The program is run by the ACA with a $125 million annual cap, awarded first come, first served. It is authorized through December 2030. ACA Qualified Facility page. For a data center that creates only a few dozen direct jobs, the credit based on investment could be the more valuable calculation.

Quality Jobs Tax Credit

This separate program provides a $3,000 credit per qualifying new job per year for up to three years (so $9,000 total per job). Quality Jobs Tax Credit page. It is not refundable but carries a five year carryforward. It requires 25 net new jobs in urban areas or five in rural areas, with capital investment thresholds met within 12 months. Because AI data centers typically employ fewer people per square foot than other industrial projects, this credit may be less useful than the Qualified Facility Tax Credit.

Will the Arizona legislature end new CDC certifications in 2026?

The political environment around AI data center incentives has shifted quickly in Arizona. Two bills filed in the 2026 legislative session, HB 2119 and SB 1799, propose to move the last day for the ACA to certify new CDC programs from December 31, 2033 to December 31, 2026. HB 2119 (2026). SB 1799 (2026). If either bill passes as written, the ACA could not certify any project whose application is submitted after 2026.

Why now? Several factors feed the backlash.

• The Arizona grid is under enormous strain. The state’s largest utility, APS, currently peaks around 8,200 megawatts, but it has 30,000 megawatts of AI data center interconnection requests in its queue. Distilled, Jan. 14, 2026. The average AI data center request to APS is now 500 megawatts.
• Electricity demand in Arizona grew 8 percent in 2025, about four times the national average. Distilled, Jan. 14, 2026.
• Local governments are pushing back. Chandler’s City Council voted 7 to 0 in December 2025 to reject a $2.5 billion AI data center. Tucson’s City Council unanimously halted a proposed $3.6 billion, 600 megawatt project linked to Amazon. Distilled, Jan. 14, 2026.
• Governor Katie Hobbs in December 2025 called the CDC tax incentives a $38 million corporate handout and urged lawmakers to find a balance. E&E News, Apr. 30, 2026. Arizona Governor’s Office, Jan. 2026.
• Arizona is not alone. At least nine states considered repealing AI data center incentives in 2026, and lawmakers in 28 states introduced bills to scale back existing programs. Broadband Breakfast, Apr. 20, 2026.

The bill sponsor, Rep. Neal Carter, told a local news outlet that his constituents do not like the AI data centers and asked why the state should subsidize them. Tax alert. As of May 23, 2026, neither bill has passed a floor vote. HB 2119 was referred to the House Commerce Committee, withdrawn on January 22, 2026, and reassigned to the House Artificial Intelligence and Innovation Committee, where it remains pending. SB 1799 had a second reading in the Senate on February 9, 2026 and remains pending in committee.

If the deadline moves, any project that has not already obtained a CDC certification before December 31, 2026 could lose access to the 10 or 20 year TPT exemption permanently, unless a later legislature extends the date again. At the same time, these bills do not appear to affect the additional depreciation rule, the FTZ classification, the Qualified Facility Tax Credit program, or the ability to use GPLET. So the property tax relief tools remain, but the sales tax exemption for equipment would sunset for new certifications.

What should developers and counsel do now?

The path forward in Arizona in mid 2026 requires speed and careful structuring. Here are the key steps to consider.

• Apply for CDC certification immediately. The current 2033 deadline gives plenty of runway, but if the 2026 bills advance, the safe course is to file a complete application with the ACA as soon as possible. An approved certification locks in the 10 or 20 year exemption period, even if the certification deadline later moves.
• Negotiate a GPLET agreement early. GPLET requires municipality cooperation. Start discussions with the host city now. Structure the lease to align with the project’s financing and the eight year abatement window where applicable.
• Evaluate FTZ designation. If the site is near an existing FTZ or you can expand one, the property tax savings on both real and personal property can be substantial over decades. The FTZ process takes time, so begin early.
• Consider the sustainable redevelopment path. If the project can meet the $200 million threshold and green building certification, the 20 year TPT exemption is a major advantage. Even if you plan a brand new building, pursuing LEED or Energy Star may pay for itself many times over.
• Layer the Qualified Facility Tax Credit. With up to $30 million in refundable credits per year, this can offset construction and equipment costs. The program is first come, first served with a $125 million annual cap, so prepare the application in parallel with the CDC certification.
• Account for water restrictions. Municipalities like Tucson and Marana have adopted ordinances that limit water use for AI data center cooling, and Phoenix requires water source documentation for special permits. Server Country, updated Jan. 2026. A project that cannot secure water may become unbuildable regardless of tax incentives. Engage water consultants early.
• Monitor the 2026 legislative session. A final outcome on HB 2119 and SB 1799 could reshape the incentive environment. Even if neither passes this year, the political pressure suggests future sessions will continue to scrutinize incentives. Plan for a world where the CDC sales tax exemption might not be available for new projects after 2026.

Key takeaways

• No direct property tax exemption. Arizona offers no statute that exempts an AI data center’s real property from property tax. The savings come from FTZ classification, GPLET, and the 2.5 percent valuation rule for business personal property.
• FTZ cuts property tax by up to 72.9 percent. Locating in a Foreign Trade Zone (or obtaining FTZ status) reduces the assessment ratio for both real and personal property.
• GPLET can replace property tax with a square footage excise tax for 25 years. It requires conveying the property to a government entity and negotiating a leaseback. An eight year abatement is available in redevelopment areas.
• The CDC program provides a powerful TPT and use tax exemption on equipment purchases for 10 or 20 years. To get it, the project must be certified by the ACA and meet investment thresholds ($50M in Maricopa/Pima, $25M elsewhere, $200M for greenfield sustainable projects). Apply now because the certification deadline may be moved from 2033 to 2026.
• Personal property tax on servers is nearly eliminated. Under a 2022 law, all business personal property classified in or after 2022 is valued at 2.5 percent of acquisition cost, cutting personal property tax by roughly 90 percent.
• Sustainable redevelopment projects get 20 years of TPT exemption. This is double the standard 10 years, but requires a higher minimum investment and green building certification.
• The Qualified Facility Tax Credit can deliver up to $30 million per year in refundable credits. It is independent of the CDC program but can be combined with it.
• Water and grid constraints are real local barriers. Several cities have rejected large AI data centers, and utility interconnection queues are severely backlogged. Tax incentives alone cannot overcome these hurdles.
• Political risk is high. Governor Hobbs and some legislators want to end or scale back the CDC tax breaks. Developers with projects in the pipeline should treat 2026 as a potential cliff.

Frequently asked questions

Q:What is the Computer Data Center program?

A:
It is an Arizona tax incentive program that exempts qualified computer data center equipment from state and local transaction privilege tax (TPT) and use tax. The project must be certified by the Arizona Commerce Authority and meet minimum investment thresholds. A.R.S. § 41-1519

Q:Does Arizona exempt AI data center buildings from property tax?

A:
No. There is no separate statute that reduces property tax on the building or land itself. However, a developer can use Foreign Trade Zone classification (Class Six property) to reduce property taxes, or negotiate a GPLET agreement with a city to replace property tax with a square footage excise tax. A.R.S. § 42-12006, A.R.S. §§ 42-6201–6210

Q:How much does a developer need to invest to get the CDC TPT exemption?

A:
$50 million in Maricopa or Pima County within five years of certification, or $25 million in other counties. A greenfield sustainable redevelopment project requires $200 million plus a green building certification. A.R.S. § 41-1519(E), A.R.S. § 41-1519(O)(13)

Q:How long does the TPT exemption last?

A:
The standard qualification period begins on January 1 of the calendar year after the calendar year containing the certification date and expires at the end of the tenth full calendar year after that calendar year. A sustainable redevelopment project’s period expires at the end of the twentieth full calendar year after the calendar year of certification. A.R.S. § 41-1519

Q:What is GPLET and how does it help an AI data center?

A:
GPLET stands for Government Property Lease Excise Tax. The developer conveys the data center property to a city, which leases it back. Because the government now owns the property, it is exempt from county property tax. Instead, the developer pays an excise tax based on the square footage of the building. The lease can last up to 25 years in a redevelopment area, but if the eight year tax abatement is taken for a lease approved after December 31, 2016, the lease is limited to eight years. A.R.S. §§ 42-6201–6210

Q:What is the 2.5 percent rule for business personal property?

A:
A 2022 Arizona law says that certain business personal property first classified in the state in or after 2022 is valued at 2.5 percent of its acquisition cost for property tax purposes, permanently. This cuts personal property tax on servers and cooling equipment by roughly 90 percent. A.R.S. § 42-13054

Q:Can a colocation tenant inside a certified CDC get the TPT exemption on its own equipment?

A:
Yes. A qualified colocation tenant is one that contracts for at least 500 kilowatts per month with a contract term of two or more years. It can buy its own CDC equipment free of TPT. A.R.S. § 41-1519(O)(12), A.R.S. § 41-1519(A)

Q:What is the 2026 bill that would end new CDC certifications?

A:
HB 2119 and its companion SB 1799 propose to change the last day for the ACA to certify new CDC programs from December 31, 2033 to December 31, 2026. As of May 2026, neither bill has become law, but they reflect a growing political push to curb data center tax incentives. HB 2119 (2026)

Q:What happens if a certified CDC does not meet the investment threshold within five years?

A:
The ACA shall revoke the certification. The qualification period automatically terminates and the Arizona 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, except that a contributing qualified colocation tenant may be subject to recapture if it is in a data center certified from and after August 31, 2016. A.R.S. § 41-1519(G)(1)

Q:Does the CDC certification survive a sale of the AI data center?

A:
Yes. Once certified, the certification stays with the facility through any transfer, sale, or disposition. A.R.S. § 41-1519(K)

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.