Continuous Improvement Projects May Qualify for Arizona R&D Tax Credits
Many Arizona manufacturers may be eligible for valuable federal and state Research & Development (R&D) Tax Credits—but don’t realize it. While “R&D” often brings to mind laboratories or new product invention, the credit is designed to reward companies for improving products, processes, and technologies—activities that regularly occur on manufacturing floors across Arizona.
What Qualifies?
Qualifying activities can include developing or refining products, improving manufacturing processes, increasing efficiency, reducing scrap or waste, enhancing quality, or designing custom tooling, fixtures, automation, or software used in production. Even routine problem-solving—such as testing materials, adjusting workflows, or running trial builds—may qualify if technical uncertainty is involved.
Federal and State R&D Tax Credits
In addition to the federal R&D Tax Credit, Arizona offers an R&D tax credit that can further enhance financial benefit. Together, these credits may offset income tax and, in some cases, payroll tax liabilities. Eligible expenses often include employee wages tied to R&D activities, supplies used during testing or development, and certain contractor costs. Importantly, projects do not need to result in a successful outcome to qualify, failed or abandoned efforts may still be eligible.
Manufacturers Investing in Continuous Improvement Can Benefit
Arizona MEP frequently works with manufacturers who are investing in Lean, continuous improvement, automation, and advanced technologies without realizing these initiatives may qualify for R&D tax credits. As part of our broader focus on operational excellence and financial performance, Arizona MEP helps manufacturers identify improvement activities that may align with R&D credit opportunities and connect them with trusted tax professionals when appropriate.
By understanding and leveraging R&D Tax Credits, Arizona manufacturers can improve cash flow, reduce tax burden, and reinvest those savings into growth, innovation, and workforce development—strengthening both their businesses and Arizona’s manufacturing economy.
Contact Arizona MEP for more information at [email protected] or call us at (602) 845-1256.