June 15, 2026 Arizona Governor Katie Hobbs has signed a budget bill that places a three-year moratorium on new sales tax breaks for data centers. The move makes Arizona one of the most aggressive states to restrict incentives for the industry amid growing concerns about energy and water consumption.
The measure was included in an $18 billion budget agreement reached between Hobbs and Republican lawmakers. The spending package also aligns Arizona’s tax code with federal changes enacted under President Donald Trump’s tax law, preventing residents from having to refile returns for the current tax year.
Arizona now joins Ohio and Illinois in pausing new data center tax exemptions while officials study the impact of the industry. In New York, lawmakers have also passed legislation that would impose a one-year moratorium on permits for new large-scale data center projects if signed into law.
Hobbs had previously called on the Republican-controlled legislature to repeal Arizona’s data center tax incentive program. After signing the budget bill, she highlighted the moratorium as one of the agreement’s key achievements. “We’re stopping the data center tax credit for three years, investing in border security, education and water security, and delivering a $1.4 billion tax cut for middle class Arizonans,” Hobbs said in a statement.
Data centers have faced increasing scrutiny in several states as demand for artificial intelligence infrastructure continues to grow. Critics argue that the facilities place significant pressure on local energy grids and water supplies while benefiting from taxpayer-funded incentives. Arizona’s existing tax break program was approved in 2013 and currently costs the state approximately $38 million per year, according to the report.
Supporters of the moratorium argue that pausing new incentives will give policymakers time to better understand the long-term impact of large-scale data center development on public resources.
The new law does not eliminate existing incentives already granted but prevents the approval of new sales tax breaks for data center projects during the three-year pause.
