R&D Tax Credits
in Arizona

For businesses in multiple industries looking to reduce Federal and State tax liability.

 

 

 

Arizona

R&D Tax Credits in Arizona

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.

Percentage

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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%.

How to Obtain Arizona R&D Tax Credit?

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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.

What Expenses Qualify for Arizona R&D Tax Credit?

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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.

Difference Between Refundable and Non-Refundable Tax Credits in Arizona

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Refundable and non-refundable R&D tax credits are both available in Arizona. The non-refundable credits, which are based on a percentage of expenses and reduce tax bills, also provide an additional credit for payments made to specified universities for basic research. The Arizona Commerce Authority issues refundable credits, which are offered to businesses that meet the requirements for the non-refundable credit and have fewer than 150 full-time employees, in the order of arrival. While demand frequently outpaces supply, the pool for refundable credits has a yearly ceiling of $5 million.

What Goes into the Arizona R&D Tax Credit as a Qualified Research Expense?

The Arizona research and development tax credit allows for businesses to claim a percentage of their qualifying research expenses. In order for an expense to qualify it must meet specific research criteria:

Products, services, processes, or software must be new or improved in some way.

The research must be technological.

Uncertainty must be eliminated as a result of the research.

Research must include experimentation processes of some nature.

The types of expenses that are applicable to claim under the credit include the following:

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.

Take Advantage of the R&D Tax Credit with Source Advisors

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. 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.  Most states offer R&D tax credits as well with many of them being more lucrative than the federal credit. 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.