There is nothing like waiting until the 11th hour to release an application for refund for companies wishing to take advantage of a new tax incentive opportunity. I remember early in my professional career, I was reminded by one of my supervisors (I was a first-year staff person at one of the global accounting firms) of the “hot potato” syndrome. This is a “syndrome” or situation where you work on a project (or in my case a tax return) and don’t take that extra time to review everything before getting it off your desk (too quickly).
Last week, The Arizona Department of Commerce released the Application for Certificate of Qualification under the state Research and Development Tax Credit Refund Program. The applications will be accepted starting January 3rd, 2011 (for those that don’t have a calendar in front of them that would be next Monday). This change to the Arizona Research and Development Tax Credit was enacted early in 2010 to be implemented for tax years beginning after 12/31/2009. The program requires companies to submit an application to the Arizona Department of Commerce that will be reviewed and either approved or denied within 30 days. The application must include both the research & development tax credit and tax liability for the taxpayer for the tax year. If approved, the taxpayer receives a certificate that will provide them with a refund of a portion of the state research & development tax credits they are due for the tax year.
The application itself isn’t too difficult to complete; other than requiring that a company have calculated their actual R&D tax credit AND their tax liability for the year before submitting it. Since W2 earnings are part of the year-end process, some companies may not have their final payroll numbers until mid to late January.
What does REFUNDABLE mean to you?
The Arizona R&D tax credit has been around for many years and has always been one of the more lucrative tax incentives available for R&D activities. Last year, Arizona raised the bar by making the research credit REFUNDABLE. What does that mean? It means that you can receive a refund of this tax incentive even if you have no tax liability. Assume your company has qualifying R&D activities and calculates a $50,000 Arizona R&D tax credit. Also, assume that your company is still chasing that illusive first dollar of profit and will generate a tax loss for the 2010 tax year. Assuming you meet the other requirements for the program, you would be eligible to receive a refund of up to 75% of the R&D tax credits generated for the 2010 tax year. Yes, a check back from the state for up to 75% of your R&D tax credits calculated. Talk about an incentive that can have an immediate impact on the state economy and for Arizona companies!
What’s the rush?
Whether the program was intended to be a pilot program or not, the state has authorized only $5,000,000 to be refunded under this program. How quickly will companies be able to complete their calculations, tax liability, and the applications? Once the $5,000,000 has been allocated out, anyone else submitting an application will be relegated to carrying their tax credits forward as they most likely have done in the past.
For more information
More information can be found at http://www.azcommerce.com/BusAsst/Incentives/RD+Income+Tax+Credit.htm
Acena Consulting is in the process of assisting a number of our clients with these refunds. If we can help, please don’t hesitate to call or email us at email@example.com