tax credit

Taking advantage of Arizona’s R&D tax credit

Tax credit

Tom Sanger

Arizona companies that create products that are more reliable, lighter, faster or less expensive,  may qualify for a dollar-for-dollar reduction of their income tax liability. But, Arizona business need to start preparing early if they hope to take advantage of this opportunity.

Arizona’s research and development (R&D) tax credits are available to companies that bear the financial risk of developing new or improved products or processes, said Tom Sanger, partner at Moss Adams LLP.

The R&D tax credit gives qualifying companies additional money to reinvest into the business, rather than pay out to the IRS or state. Arizona offers the most generous R&D tax credit in the nation. While most states have an R&D credit rate of 5 percent to 10 percent, Arizona’s is at 24 percent.

“Businesses are doing these activities regardless of the tax credit,” Sanger said, “but additional credit is a bonus to profits.”

Arizona holds another notable distinction in terms of R&D credits: a refundable credit to qualifying small businesses, Sanger added. Refundable claims are limited to $5 million per year and funds are allocated on a first-come, first-serve basis.

Eligible businesses must first obtain pre-approval for the credit by submitting an application to the Arizona Commerce Authority prior to filing their tax return. It is critical to begin preparing early for the pre-approval process because last year’s funds were depleted by the end of January. The application period opens on January 1.

Meryl Fishler

About Meryl Fishler

Meryl Fishler is a writer, student and sports enthusiast. She was born in raised in New Jersey and moved to Arizona to pursue a degree in journalism at the Walter Cronkite school at ASU. In her spare time you can find her watching the game or poolside. She is always up for adventure and loves to travel with dreams of making it to every continent.