Arizona is moving to end sales tax breaks for new data centers as Gov. Hobbs says the incentives have done their job and the state is already a top global market.
Cutting the subsidy removes a material cost advantage on servers and facility equipment but does not block operators from building more capacity in the state.
Water and power stress are now front and center, with recent local pushback on large projects over grid strain and high water use in a desert environment.
The state expects to free up roughly $38 million a year in lost revenue and Hobbs also wants a penny-per-gallon fee on data center water consumption to fund conservation.
This creates a more expensive operating profile for hyperscalers and AI build-outs in Arizona compared to previously modeled economics, especially for GPU-heavy, high-density deployments.
Bipartisan support for ending the incentives suggests operators should plan on a structurally different tax and regulatory environment for future Arizona AI data center projects.
The article is worth reading for understanding how local politics and resource constraints are reshaping one of the biggest U.S. growth markets for data center and AI infrastructure.
Source: Arizona Gov. Hobbs against tax breaks to build data centers in AZ
