Tax Incentives Blog

Arizona R&D Tax Program: Savings Easier to Claim than Hiking the Grand Canyon

Written by Mark Echols. Updated Dec 18, 2018.

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Being one of the Seven Natural Wonders of the World, Arizona’s Grand Canyon National Park is a breathtaking and humbling vision to behold. But to fully appreciate its wonder, hiking down into the canyon is a must.  With dozens of trails available to visitors, hiking the canyon is a popular activity. However, despite all its beauty, taking to the trails that snake down along the walls of the Grand Canyon can be a demanding, even treacherous endeavor.

With adequate preparation, you can attempt it on your own, but for a more fulfilling experience, guided hikes and mule rides along the canyon trails are preferable. Why not let experts lead you through the tricky terrain and allow mules to carry the load and do all the work in the heat of the canyon?

Hiking the R&D Tax Credit Trail

Much the same can be said for small and medium size businesses attempting to claim tax credits for the Research and Development (R&D) incentives offered in Arizona. Arizona sponsors a generous program that incentivizes small taxpayers to pursue R&D activities. But understanding the process for identifying qualifying initiatives as well as allocating and documenting eligible expenses can be daunting.

Find out if your business qualifies for R&D Credits

Like hiking the Grand Canyon, why not partner with a tax consultant that specializes in tax incentives, one who can shoulder the burden of guiding your company through the claims process to maximize benefits your business deserves?

Navigating the Legislative Footpath

Many states, including “The Grand Canyon State”, have significant credits and incentives for companies that invest in research activities.  Under the Arizona Revised Statue (A.R.S) § 43-1168, the Research and Development (R&D) incentive provides an Arizona income tax credit for increased research and development activities conducted in the state, including research conducted at a state university and funded by the company. The goal is to encourage businesses to continue investing in research and development activities in the state of Arizona.

The Arizona R&D tax credit is multifaceted and allows for both a refundable and non-refundable credit for research and development activities conducted in Arizona.  For tax years 2011 through 2022, the R&D credit percentages are 24% for the first $2.5 million in qualifying expenses plus 15% of the qualifying expenses in excess of the $2.5 million.  For 2023 and thereafter, the R&D credit are 20% for the first $2.5 million in qualifying expenses plus 11% of the qualifying expenses in excess of the $2.5 million.

The non-refundable R&D program was further enhanced in tax year 2012 for taxpayers that make basic research payments to a university under the jurisdiction of the Arizona Board of Regents.  The additional university R&D tax credit for university payments when added to the regular R&D tax credit could yield a credit of up to 34% of the excess of basic research payments over the base period.

Established under A.R.S. § 41-1507 and further elaborated under A.R.S. § 43-1168, Arizona taxpayers that otherwise qualify for the non-refundable R&D tax credit and who employ less than 150 full-time employees worldwide, can apply to the Arizona Commerce Authority (ACA) for approval of a R&D tax credit refund.1 

The refundable tax credit is equal to the lesser of:

  • 75% of the current year’s tax credit minus the current year’s tax liability; or
  • The maximum refund amount on the Certificate of Qualification from the ACA.

The ACA may authorize up to $5 million per calendar year in refundable tax credits to qualified taxpayers.  The refund is on a first-come, first-served basis depending on the date of the application submitted to the ACA.  To qualify for a refundable tax credit, a taxpayer must submit an application to the ACA prior to filing their income tax returns.  If eligible, the taxpayer will receive a Certificate of Qualification and may claim the refund on the originally filed Arizona tax return along with Revenue Form 308 (for corporations).2

Let a Tax Specialist be your Guide

Arizona businesses conducting research and development activities in the state of Arizona should seriously consider filing for valuable R&D tax credits. The R&D credit is one of the largest incentives available to businesses and can possibly save your company hundreds of thousands of dollars annually.

Let CTI’s elite tax professionals be your guide! Partner with our team of attorneys, CPAs, engineers, and scientists with ‘Big 4’ experience to identify which activities are eligible for the credit and what expenses can be used to maximize tax savings for your Arizona business operations.

Like canyon mules carrying the load, CTI does the work for you, proactively managing your claims process and navigating through substantiation and documentation to achieve a favorable outcome, maximizing credits for your business.

Let’s go on a hike together! Schedule your complimentary CTI consultation today.

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1. https://www.azcommerce.com/incentives/research-development
2
https://www.azcommerce.com/incentives/research-development/rd-refundable-tax-credit/ 

Topics: R&D Tax Credit

Mark Echols

Written by Mark Echols

Mark leads CTI’s national research and development (R&D) tax credits practice and is involved in all aspects of providing R&D tax credit services to his clients, including: conducting high-level R&D tax credit feasibility analyses, managing complex and comprehensive R&D tax credit studies and defending R&D tax credit claims under IRS and state taxing authority examinations.

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