The Research and Development (R&D) incentive provides an Arizona income tax credit for increased research and development activities conducted in this state, including research conducted at a state university and funded by the company. The goal is to encourage Arizona businesses to continue investing in research and development activities.
Enacted in 1992 for corporations (currently, A.R.S. § 43-1168) and 1999 for individuals ( A.R.S § 43-1074.01), the nonrefundable R&D tax credit has been administered by the Arizona Department of Revenue (Revenue). The 2011 through 2017 R&D tax credit is equal to 24% of the first $2.5 million in qualifying expenses plus 15% of the qualifying expenses in excess of $2.5 million. For 2018 and thereafter, the tax credit rates will be 20% of the first $2.5 million in qualifying expenses plus 11% of the qualifying expenses in excess of $2.5 million.
During the 2010 legislative session, Senate Bill 1254 provided for a partial refund of the R&D tax credit. The R&D refundable tax credit program is established by A.R.S. § 41-1507 and is administered by the Arizona Commerce Authority (ACA). Starting in 2010, a qualifying company may be eligible to claim a partial refund of its current year excess R&D credit. A company that is otherwise qualified for the R&D tax credit who employs less than 150 full-time employees can apply to the ACA for a partial refund of up to 75% of the excess credit amount. To apply for a partial refund of the R&D tax credit program, please see below or direct questions to the ACA Program Manager.
The nonrefundable R&D program was further enhanced during the 2011 legislative session. An additional credit amount is allowed if the taxpayer made basic research payments during the tax year to a university under the jurisdiction of the Arizona Board of Regents. The additional credit amount is equal to 10% of the basic research payments that constitute excess expenses for the tax year over the base amount. The increased university R&D tax credit is administered by Revenue for tax years beginning from and after December 31, 2010. Additional information on the nonrefundable tax credit can be found on the Arizona Department of Revenue’s website.
R&D REFUNDABLE TAX CREDIT INCENTIVE OVERVIEW
The 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. Download the R & D Tax Credit Allocation Table to view the remaining amount of tax credits available.
2016 Allocation Table
Applications must be based on actual numbers, not estimates. 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. If, however, 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. To apply electronically for program incentives, click here.
BASIC ELIGIBILITY REQUIREMENTS
A company may be eligible for a partial refund of its R&D tax credit, if it:
- Meets the eligibility requirements of A.R.S. §41-1507 and 43-1074.01 or 43-1168 and the company’s current year’s Arizona R&D tax credit exceeds its current year’s tax liability.
- Submits an application to theACA and receives a Certification of Qualification prior to filing a tax return with Revenue.
- Employs less than 150 full-time employees world-wide as of the last day of the taxpayer's taxable year.
- Remits a non-refundable processing fee equal to 1% of the company’s tax credit being refunded.
- Does not exceed the tax year refund limitations under A.R.S. § 41-1507 (E)
- Complies with employer and business sanctions set forth in A.R.S. § 23-214 (B) and A.R.S. § 35-393.
Questions regarding the refundable tax credit, can be directed to the ACA Program Manager.