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 2022 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 2023 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 click here 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; 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 ACA. Click here for additional information on applying for certification of research payments from the ACA 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.