Sunny Skies and Cold, Hard Cash: Arizona’s Refundable R&D Tax Credit

Greetings from Arizona! CPAs, did you know that Arizona business owners can not only explore breathtaking natural wonders, but also receive cold, hard cash for investing in research and development (R&D)?

Ditat Deus! (That’s Arizona’s state motto, translated to “God Enriches.”)

Arizona offers a refundable component to the R&D tax credit. Even if their tax liability is zero, your clients can still receive a refund to boost their cash flows.

As we approach the first business day of 2025, companies interested in applying for Arizona's R&D tax-credit refunds should prepare their applications and ensure they meet all eligibility criteria.

Here’s a comprehensive breakdown of new-year changes and tips for filing your applications.

Key Updates to Arizona’s R&D Tax Credit

The Arizona Department of Revenue (DOR) administers the nonrefundable component via Form 308.

• Before 2031, companies can receive a credit for 24% of the first $2.5 million in qualifying expenses. For any amount exceeding $2.5 million, the credit remains a respectable 15%.
• On January 1, 2031, these percentages decrease to 20% and 11%, respectively.

The Arizona Commerce Authority (ACA) manages the refundable component. 

• The Arizona legislature has capped total refunds at $5 million annually. Effective from calendar year 2019, individual taxpayers can claim a maximum annual amount of $100,000.
• Taxpayers must meet basic eligibility requirements, including: 
  • Employing fewer than 150 employees worldwide as of the last day of the taxpayer’s taxable year.
  • Meeting the eligibility requirements of A.R.S. §§ 41-1507 and 43-1074.01 or 43-1168.
  • Complying with employer and business sanctions set forth in A.R.S. § 23-214 (B) and A.R.S. § 35-393.

You should know that all applications must be based on actual numbers, not estimates. 

Schedule a free consultation today for immediate assistance.

Deadlines and the Application Process

NOW: Arizona businesses need to request a user name to file applications electronically via the ACA’s Electronic Application System (i.e., Easy Portal). Processing of these requests should take place within two business days.

January 2, 2025, 8 a.m. Arizona Time: Calendar-year taxpayers can submit their applications via the ACA’s Electronic Application System for the year ending on December 31, 2024.

January 2, 2025, 11:59 p.m. Arizona Time: All applications submitted on the first day will be prioritized for processing using a randomized selection process to ensure fairness. The ACA will process applications until the total refunds reach the cap of $5 million.

First business day after the fiscal-year closes: Fiscal-year taxpayers can submit their applications. For example, if a business’ fiscal year ends on June 30, 2025, then the application can be filed as early as July 1, 2025, provided the program cap is not yet reached.

Confidently submit your credit claims with Acena’s expert guidance. We'll ensure everything is accurate, complete, and delivered on time.

Next Stop, California!

• Subscribe to our newsletter as our R&D state tour continues next week to California.
• Sign up for our free, interactive webinar on November 19: “Cracking the (Tax) Code for R&D.”
  • This workshop provides one CPE credit for professionals keeping up with continuing education.

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Edited by Rae Smoltz, Project Manager at Acena Consulting. Photo courtesy of paulmaraj on Flickr.