The R&D tax credit can help a wide variety of businesses offset and reduce their income tax liability, in addition to providing many other benefits.
The Arizona R&D tax credit is intended to encourage particular research endeavours within the state, such as publicly sponsored research at public universities. In Arizona, this tax credit is both refundable and nonrefundable. The credit is intended to encourage companies to increase their R&D activities within the state, potentially lowering their tax obligations. It’s critical for firms to comprehend the requirements and qualifying standards for this tax benefit.
Businesses can take advantage of this tax credit by making investments in R&D projects, which will help the state’s economy expand and innovate. In general, Arizona businesses are encouraged to engage in research and development activities because of the tax credit.
To obtain the research and development (R&D) refundable tax credit in Arizona, a taxpayer must submit an application to the Arizona Commerce Authority (ACA) before filing their tax returns. For taxable years beginning before January 1, 2022 – can be carried forward to the next fifteen consecutive taxable years. For taxable years beginning from and after December 31, 2021, can be carried forward to the next ten consecutive taxable years.
Businesses in Arizona are encouraged to undertake qualified research activities (QRAs) that fall into four categories: permitted purpose, technological uncertainty, the process of experimentation, and technological in nature. Qualified research expenses (QREs) that are eligible for tax credits include expenses related to research and development supplies, salaries for US employees and subcontractors, and hosting costs for off-premise tech rentals. By participating in these QRAs and incurring these eligible expenses, businesses can qualify for tax credits in Arizona.
The state offers both refundable and non-refundable credits, which can help businesses reduce their tax liability and allocate more resources toward research and development initiatives. Ultimately, the tax credit program provides an incentive for businesses to invest in research and development, leading to growth and innovation in Arizona’s economy
The non-refundable R&D tax credit in Arizona amounts to 24% of the spend on qualified research expenses up to $2,500,000. For expenses beyond the $2.5 million threshold, the credit percentage is reduced to 15%.
For 2031 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.
The non-refundable University R&D tax credit amount is equal to 10% of the basic research payments that constitute excess expenses for the tax year over the base amount. However, before a taxpayer can apply or otherwise claim such tax credits, a taxpayer must first apply for a certification of research payments.
Businesses in Arizona are encouraged to undertake qualified research activities (QRAs) that fall into four categories:
Qualified research expenses (QREs) that are eligible for tax credits include expenses related to research and development supplies, salaries for US employees and subcontractors, and hosting costs for off-premise tech rentals.
By participating in these QRAs and incurring these eligible expenses, businesses can qualify for tax credits in Arizona.Â
Wages paid to employees who are directly involved in the performance of research and development activities within the state of Arizona. This includes payments made to subcontractors involved in the performance of such activities.
Most states offer R&D tax credits as well with many of them being more lucrative than the federal credit. At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and also determine any state R&D tax credit availability. Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.
