Skip to content
creditARMOR

State program

Arizona Research and Development Credit

Run a mock audit for ArizonaOfficial source (opens in a new tab)
  • Offset only

Last reviewed November 2026

2026 change: The refundable portion of the Arizona research credit (the Arizona Commerce Authority refund program) is repealed for taxable years beginning on or after January 1, 2026 (HB 4168, Laws 2026, ch. 140, signed June 13, 2026). The nonrefundable credit continues unchanged. Taxable years beginning before 2026 are still governed by prior law.

At a glance

  • Jurisdiction: Arizona (AZ)
  • Credit name: Credit for Increased Research Activities (A.R.S. § 43-1168 for corporations; § 43-1074.01 for individuals), plus the Additional Credit for Basic Research Payments to Arizona Board of Regents universities.
  • Administering agency: Arizona Department of Revenue (ADOR). The Arizona Commerce Authority (ACA) certifies university basic research payments (A.R.S. § 41-1507.01) and, for pre-2026 years only, administered the refund program (former A.R.S. § 41-1507).
  • Rate(s) and base: 24% of the first $2.5 million of Arizona qualified research expenses (QREs) above the base amount, plus $600,000 plus 15% of the excess over $2.5 million. For taxable years beginning on or after December 31, 2030, the rates step down to 20% of the first $2.5 million, plus $500,000 plus 11% of the excess. The university credit is 10% of basic research payments above the qualified organization base period amount.
  • Refundable? No, for taxable years beginning on or after January 1, 2026. For earlier years, taxpayers with fewer than 150 full-time employees worldwide could, with an ACA Certificate of Qualification, elect a refund of up to 75% of the excess credit, capped at $100,000 per taxpayer per year and $5 million statewide per calendar year, and waive the other 25%.
  • Transferable? No.
  • Carryforward: 10 years for credits from taxable years beginning after December 31, 2021, and 15 years for earlier credits. The university basic research credit carries forward 5 years.
  • Annual cap / proration: No cap on the nonrefundable credit. The university basic research credit is capped at $10 million statewide per calendar year (combined individual and corporate). ADOR certifies credit amounts on application in order of filing date and denies later applications once the limit is reached.
  • Pre-approval / application and deadline: Not required for the nonrefundable credit. The university credit requires ACA certification of the basic research payments and an application to ADOR for certification of the credit amount under the $10 million limit before the credit is claimed.
  • Forms: Form 308 (corporations, S corporations, partnerships), Form 308-I (individuals), Form 346 (Additional Credit for Increased Research Activities for Basic Research Payments), and Form 300 or 301 (nonrefundable credit summary).
  • Sunset / recent changes: No sunset (the federal § 41 termination rules do not apply). The refundable portion is repealed from 2026 (HB 4168). Rates step down from 2031 (taxable years beginning on or after December 31, 2030).

What it is

Arizona allows a nonrefundable income tax credit for increased research activities conducted in Arizona. The credit uses federal IRC § 41 definitions with Arizona-specific modifications. Only research performed in Arizona counts, and the base amount is computed with Arizona gross receipts. A separate additional credit rewards cash basic research payments to Arizona public universities.

Who can claim it

  • Corporations, S corporations, partnerships and individuals with Arizona qualified research expenses. Pass-through credits flow to owners.
  • For the university credit, taxpayers that make cash basic research payments to a university under the Arizona Board of Regents and have those payments certified by the ACA.
  • The refund election is not available for taxable years beginning on or after January 1, 2026.

How it is calculated

  1. Identify Arizona QREs (wages, supplies and 65% of contract research for qualified research performed in Arizona) under IRC § 41 definitions.
  2. Compute the base amount using the § 41 fixed-base method, substituting Arizona QREs and Arizona gross receipts.
  3. Apply 24% to the first $2.5 million of excess QREs and 15% to the rest ($600,000 plus 15% above $2.5 million). From taxable years beginning on or after December 31, 2030: 20% and 11% ($500,000 plus 11% above $2.5 million).
  4. University credit (Form 346): 10% of certified basic research payments above the qualified organization base period amount, limited to the lesser of the payments or the ACA certification.
  5. Apply the credit against Arizona income tax. Carryforwards are used after the current-year credit and are limited to tax liability less the current-year credit.

How to claim it

  • Complete Form 308 (or 308-I) and carry the result to the nonrefundable credit summary on Form 300 or 301. Attach the form to the Arizona return.
  • University credit: obtain ACA certification of basic research payments, apply to ADOR for certification of the credit amount under the $10 million limit, then complete Form 346.
  • Pre-2026 refund claims: the refund election had to be made on an original return, with an ACA Certificate of Qualification received before the return was filed. These rules still govern taxable years beginning before January 1, 2026.

Recent changes

  • HB 4168 (Laws 2026, ch. 140), signed June 13, 2026: Repeals the refundable portion of the individual and corporate research credits, and the ACA refund certification under A.R.S. § 41-1507, for taxable years beginning on or after January 1, 2026 (A.R.S. § 41-1507 is repealed). A savings clause preserves existing credit carryforwards. The same act updates Arizona's IRC conformity date to January 1, 2026, retroactive to taxable years beginning after December 31, 2024, which picks up federal § 174A expensing of domestic research costs for 2025. Taxpayers that filed a 2025 Arizona return before the act should consider whether an amended return is needed for § 174A conformity.
  • Earlier law: The 10-year carryforward applies to credits from taxable years beginning after December 31, 2021. The scheduled rate step-down for taxable years beginning on or after December 31, 2030 is already in the statute.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Arizona and other locations, how Arizona amounts reconcile to federal Form 6765, the Arizona credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Arizona tax.

  1. Show that each research activity was physically performed in Arizona, with locations for each employee and contractor.
  2. Provide the Arizona base amount computation, including Arizona gross receipts and the fixed-base percentage support.
  3. Reconcile Arizona QREs to federal Form 6765 and explain each difference.
  4. For a 2026 or later return, confirm that no refund was claimed. For a pre-2026 refund, provide the ACA Certificate of Qualification and the employee count on the last day of the tax year.
  5. For the university credit, provide the ACA certification, proof of cash payment, and the base period computation.
  6. Provide the carryforward schedule by vintage, separating pre-2022 (15-year) and post-2021 (10-year) credits.
  7. For pass-through credits, provide the allocation to owners.

Common weak spots

  • Treating the credit as refundable for 2026 or later years.
  • Base amount computed with total rather than Arizona gross receipts.
  • Out-of-state research included in Arizona QREs.
  • Carryforward vintages not tracked, so 15-year and 10-year credits are mixed.
  • University credit claimed without ACA certification, or above the certified amount.
  • Not modelling the 2031 rate step-down in multi-year projections.

Next steps

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.

Run a free R&D tax credit mock audit.

You can also book a free thirty-minute scoping call with a specialist. Upload your files and see how your evidence would hold up to the questions an IRS examiner is likely to ask. A higher score means a more audit-ready claim.

creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS examination. Book a call or email hello@creditarmor.ai for a login.

Book a scoping call (opens in a new tab)Run the eligibility checker