Leveling the R&D Benefit Playing Field: Arizona’s Refundable Tax Credit

2 Minute Read
Posted by Randy Eickhoff on Oct 26, 2021 10:30:00 AM

Federal legislative and regulatory updates to the research and development tax credit have empowered small businesses to tap into the tax benefits available to companies growing through innovation. Previously, many entrepreneurs assumed that R&D tax credits are reserved solely for the biggest operators in their industry. It is true that in years past, the R&D tax credit program offered its most significant benefits to larger enterprises. However, several positive moves have changed the game for small business.

It’s useful to note that R&D tax credit changes aren't only made at the federal level. The state of Arizona is an example of a local government adjusting its regulations to level the research and development benefit playing field for innovative companies. Other states have also recalibrated their specific innovation tax credit legislation to increase the opportunity for small businesses to leverage the benefit.

Small Business Owners Can Claim up to $100,000 in Arizona’s Refundable R&D Tax Credits

Every year on a first-come-first-serve basis, Arizona authorizes up to $5 million in refundable research and development tax credits. However, Arizona's R&D tax credit program places a cap of $100,000 cash refund per taxpayer per year of R&D tax credits. Limiting the refund amount reduces the threat of large organizations grabbing the largest share of the state's allocated funds, making Arizona's benefit cap fantastic news for smaller enterprises.

Find out if Your Arizona Business Qualifies for the Research and Development Tax Credit

Eligible companies can claim the credit if they can demonstrate qualifying projects that meet the program's required standards. This includes being technological in nature, serving a qualified purpose, and attempting to eliminate technical uncertainty through a process of experimentation.

Arizona businesses can even apply for a credit on qualified research expenses across a multitude of expense classifications. These categories include but are not limited to:

  •   Employee wages
  •   Prototyping and testing supplies
  •   Contract research
  •   Software subscriptions used on development projects
  •   Costs of outside testing facilities

What Should Qualifying Arizona Business Owners Know?

Like any incentive, it's essential to go into the process knowing a few fundamental policies and practices. Fortunately, the updates to Arizona's R&D tax credit program make it highly accessible to businesses of every size and across dozens of industries. Even with the tax credit cap, Arizona's refundable research and development tax program is still a first-come-first-serve program with a total of $5 million in available cash refunds. 

It’s important to apply for refunds under this program the moment it becomes available. The state pays applicants from the designated pool based on the date and time an application is filed with the Arizona Commerce Authority. Once the funds have been allocated, no further refunds will be approved. Companies can still file for Arizona R&D tax credits but would not be eligible for any cash refunds. Due to this, qualifying business owners should complete the online application as soon as it becomes available on January 3.

If you have questions about applying for research and development tax credits for your business, we can help! Contact Acena Consulting today.

 

Randy Eickhoff

Randy Eickhoff

Acena Consulting Founder and Partner. Randy is a licensed CPA and has worked with over 200 companies on various tax credits and other government incentives including multinational technology firms as well as small privately held manufacturing, sports, and technology companies.