A pause on a statewide tax incentive for data centers was supposed to save Arizona money. But the effort may have backfired.
Between June 15 and June 30, more than 100 applications were submitted.
The vast majority were approved, according to new data provided to The Arizona Republic. Of the 113 applications, 107 were approved ― more than have been approved in the life of the tax credit program. Three applications were withdrawn, and three were denied because the applicants weren’t qualifying owners or operators or failed to provide additional information.
Data centers were a hot topic in the 2026 general election. They dominated the Arizona Corporation Commission race, in which two Democrats made inroads in the all-Republican commission. Incumbent Attorney General Kris Mayes called for a data center moratorium and pledged to use nuisance law to fight unwelcome projects. Republican congressional candidate Mark Lamb wrote that although he was “pro-growth, pro-jobs, and pro-free enterprise,” “when it comes to massive AI data centers coming into Arizona, we should still be asking the right questions about water usage, power demand, and infrastructure strain.”
While data centers aren’t new, larger projects often tied to artificial intelligence have drawn nationwide pushback and scrutiny. The proliferation of hyperscale data centers has increased energy demand projections.
The application totals don’t mean more than 100 new data centers are under construction. Many of the applications covered additional facilities at existing projects, and others may never come to fruition.
Gov. Katie Hobbs, who took a more cautious position in the data center debate, billed the temporary moratorium as one of the toughest data center policies in the country. She touted it as a major victory for her administration in state budget negotiations and predicted it would save the state $57 million each year. Spokespeople for the governor did not respond to voicemails from The Arizona Republic.
Typically, the state received only a handful of applications each year. Fiscal year 2024 had the highest number of approved applications: 11. The estimated foregone tax revenue has been increasing exponentially.
The program was established in 2013. In fiscal year 2015, the state estimated it had forgone roughly $90,000 in potential tax revenue. A decade later, it estimated that it had forgone roughly $38.5 million in fiscal year 2025 alone ― more than half of the total estimated revenue forgone since the program’s inception.
Before June 15, there were 73 operating facilities that qualified for the tax incentive. If all the approved applicants complete their projects, the number of qualified facilities would more than double.
How does the program work?
The projects have to comply with Arizona investment requirements to keep those benefits. If all 107 projects are built, the minimum required in-state investment would be $18.3 billion.
To qualify, projects have to invest between $25 million and $200 million within five years of the effective date of the certification, depending on project specifics and location.
The exemptions are typically valid for 10 years, but can last up to 20 years, depending on the project. If data centers replace equipment every few years, they can benefit multiple times before the exemption expires.
Alaina Mencinger covers energy, tech and utilities for The Arizona Republic. Reach her at Alaina.Mencinger@usatodayco.com.
This article originally appeared on Arizona Republic: Arizona approved 107 data center tax breaks before moratorium
Reporting by Alaina Mencinger, Arizona Republic / Arizona Republic
USA TODAY Network via Reuters Connect
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