Arizona Tax Court Rules on Colocation Taxability, Bars Retroactive Application

The Arizona Tax Court issued a mixed ruling on cross-motions for summary judgment, holding that a data center operator was subject to transaction privilege tax (TPT) on colocation services and server rentals but that the City of Phoenix could not apply its interpretation retroactively. The taxpayer operated data centers providing colocation services—where customers house equipment in secure facilities—and server rental services, and was assessed approximately $4.55 million in taxes covering October 2016 through August 2020. The court concluded that colocation arrangements constituted taxable real property rental, and server rentals constituted taxable personal property rental, rejecting the taxpayer’s argument that ancillary ...