Arizona R&D Tax Credits

Under A.R.S. §43-1168 and A.R.S. §43-1074.01, the state of Arizona offers a non-refundable R&D tax credit equivalent to 24% of the first $2,500,000 in qualifying expenditures and 15% of all expenses exceeding $2,500,000. Arizona also offers a partial refund of the R&D tax credit under Senate Bill 1254 and A.R.S. §41-1507. The partial refund, up to 75% of the excess credit, is only available to companies that employ less than 150 full-time employees and have received a Letter of Certification from the Arizona Commerce Authority (ACA).

There is an extra refund of 10% offered to companies that made research payments to a university in Arizona.  An individual or corporate income tax credit is available for taxpayers with qualifying basic research payments to a university under the jurisdiction of the Arizona Board of Regents. The credit is for taxpayers that qualify for the general Arizona Research and Development income tax credit. To be eligible to take the additional income tax credit for making basic research payments to Arizona State University, Northern Arizona University, or the University of Arizona, a taxpayer must:

• Have a Letter of Certification from the Arizona Commerce Authority; and
• Have a Letter of Approval certifying the credit amount from the Arizona Department of Revenue.

Learn more about Arizona's R&D Tax Credit law.

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R&D Tax Credit Available:

Yes

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Eligible Entities:

C-Corporation, S-Corporations, LLCs, Partnerships

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Deadline for Tax Filing:

Due with Arizona Tax Return

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Data Required to Compute Credit:

Claim period Qualified R&D Expenses (QREs)

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What Information is needed?

Gross Receipts for Prior 4 Years

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Credit Carry forward:

15 Years

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The R&D tax credit equals:

• 24% of the first $2.5 million in QREs
• 15% of the QREs in excess of $2.5 million
• No ASC Method

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Specific Items to Note:

• Arizona offers a refundable and non-refundable research tax credit. The Arizona Commerce Authority (ACA) has been given the authority to approve refunds under this program up to $5 million in any calendar year. Therefore, refunds are approved by the ACA on a first-come, first-served basis, according to the date and time an application is filed with the ACA. Beginning in calendar year 2019, the maximum refund amount per taxpayer is $100,000 in a single tax year.
• To qualify to receive refundable portion of excess credit:  A) Company must have less than 150 full-time employees; and B) Must apply to the ACA and receive a Certificate of Qualification from the ACA. The Certificate of Qualification that must be attached to the original tax return (refund of 75%, remaining 25% is forfeited, application cost is 1% of the amount refunded); Application must be e-filed as soon as the online application period opens.
• A calendar year taxpayer may file an Application on or after the first business day following the close of the previous calendar year. A fiscal year taxpayer may file an Application on or after the first business day after the end of the fiscal year. For example, a taxpayer with a June 30, 2012 fiscal year end could apply for a partial refund of R&D credits as early as July 2, 2012, if cap is still available. However, if the 2012 cap has been exhausted, the fiscal year end taxpayer may submit an Application on or after the first business day of 2013, provided said taxpayer has NOT filed its tax return with Revenue for the tax year in which the R&D credit was generated.
• Calendar Year 2022 applications may be filed on or after the first business day of 2023 via the ACA's Electronic Application System (also known as EASY)
• The Arizona Department of Revenue administers the University R&D Tax Credit. However, before a taxpayer can apply to Revenue for University R&D tax credits or otherwise claim such tax credits, a taxpayer must first apply for a certification of research payments from the Arizona Commerce Authority (ACA).
  
• The ACA cannot certify research payments in excess of the $10 million limit (cap) in University R&D tax credits for a calendar year.  Once the $10 million certification cap is attained, no additional research payments may be certified by the ACA.  Similarly, the ACA also will approve these applications on a “first come, first served” basis.