State Program
Arizona Credit for Increased Research Activities
A two-tier state credit modeled on the federal research credit, with a partial refund available to qualifying small businesses.
Program Overview
Arizona offers one of the more generous state research incentives. The credit is calculated on Arizona-based qualified research expenses in excess of a base amount and is tiered so that spending above a threshold earns a lower marginal rate. Companies with fewer than 150 full-time employees may apply to the Arizona Commerce Authority for a partial refund of the unused credit, subject to applicable requirements. An additional credit is available for qualifying basic research payments made to Arizona universities.
Eligibility
- C corporations and pass-through entities with qualified research expenses incurred in Arizona may qualify.
- Research activities must meet the applicable requirements under IRC Section 41.
- Businesses seeking a refund must obtain Arizona Commerce Authority certification and have fewer than 150 full-time employees.
- Additional eligibility requirements may apply to specific research credits.
Benefits
- Provides a non-refundable credit against Arizona income tax liability.
- Qualifying small businesses may receive a refund of up to 75% of the excess credit, subject to applicable requirements and limitations.
- An additional credit may be available for qualifying basic research payments made to Arizona universities.
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