Arizona R&D Tax Credit Case Study
The R&D tax credit is one of the most valuable credits leveraged by companies. The R&D credit yields billions of dollars in federal and state benefits to companies engaged in qualifying research. The R&D tax credit can provide a significant reduction to current and future tax liabilities and a source of cash for companies performing R&D in Arizona.
Benefits
- Up to 13.5 cents of R&D tax credit for every qualified dollar
- Dollar-for-dollar reduction in your Arizona income tax liability
- For tax years before 2022, credits can be carried forward for 15 years
- For tax years after 2021, credits can be carried forward for 10 years
Qualifications
More companies in Arizona can now qualify for the R&D tax credit. Companies are able to qualify R&D activities beginning with the development of concepts and extend to the point where a product, process, formula, or other business component is ready to be commercially released. If you are engaged in any research activities in Arizona, looking into the state’s R&D tax credit may be a great benefit. In addition, look back studies can recognize unclaimed credits for the last 3 or 4 open tax years.
Case Study
A chemical manufacturing company in Tucson, Arizona qualified for a substantial credit. The company claims R&D credits each year for the development activities of its engineers. This project involved a multi-year study covering the tax years 2018-2021. The Company qualified for the federal R&D Tax Credits of $255,000 and an additional $306,000 in Arizona state R&D Tax Credits.
FEDERAL
|
ARIZONA
|
|||||
Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
2021
|
$750,000
|
$75,000
|
$750,000
|
$90,000
|
||
2020
|
$700,000
|
$70,000
|
$700,000
|
$84,000
|
||
2019
|
$650,000
|
$65,000
|
$650,000
|
$78,000
|
||
2018
|
$450,000
|
$45,000
|
$450,000
|
$54,000
|
||
Total | $2,550,000 | $255,000 | $2,550,000 | $306,000 |
Four-Part Test
Qualified research activities are defined by the four-part test outlined below
Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.Experimentation
All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.Research and Development Tax Insights

Lawmakers Introduce Bill to Retroactively Fix R&D 174 Expensing
03/14/2025By Kevin Zolriasatain and Paul McVoy | Principals, Research & Development Tax Credits On March 10, 2025, a bipartisan group of lawmakers introduced the American Innovation and R&D Competitiveness Act of 2025 in the U.S. House of Representatives. The legislation aims to restore the immediate deductibility of research and experimental (R&E) expenditures and reverse the amortization requirement imposed … Read More

KBKG Announces Enhancements to Dash.tax, Streamlining R&D Tax Credit Claims for CPAs, Startups, and Small Businesses
03/04/2025PASADENA, Calif. – March 4, 2025– KBKG, a leader in tax credits and incentives solutions, has introduced significant enhancements to Dash.tax, its innovative tax automation platform designed for CPAs, startups, and small businesses. The latest updates further streamline the process of claiming R&D tax credits, ensuring businesses can efficiently apply credits to payroll taxes, maximize … Read More

Engineering Firms Loses R&D Credits in Court Ruling
02/12/2025By Michael Maroney | Director, Research & Development Tax Credits The Phoenix Design Group, Inc. v. Commissioner decision issued on December 23, 2024, is an important reminder of the hurdles faced when substantiating research activities for the R&D tax credit. The court denied all research credits claimed by Phoenix Design Group (PDG), a multidisciplinary engineering … Read More

KBKG Tax Insight: Michigan R&D Tax Credit Now Available
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Texas Issues Guidance on Franchise Tax Credits and Carryforward
01/23/2025By Bill Taylor | Principal, Research & Development Tax Credits Recently, the Texas Comptroller’s Tax Policy Division issued guidance on how to apply multiple franchise tax credits and credit carryforwards when more than one is available. The updated guidance clarifies the order in which credits should be applied to maximize tax benefits for taxable entities. … Read More

45X Advanced Manufacturing Production Credit Regulations Update
12/19/2024By Jonathan Tucker | Principal – R&D Tax Credits Republican Senators Tom Cotton (R-AR) and Rick Scott (R-FL) have introduced a resolution (S.J.Res. 119) to overturn final regulations (TD 10010) implementing the Section 45X Advanced Manufacturing Production Credit, a green energy tax incentive created by the Inflation Reduction Act. This mirrors a bipartisan House resolution … Read More

KBKG Tax Insight: Potential Tax Changes Under a Republican Trifecta – Key Issues to Watch
12/03/2024By Jonathan Tucker | Principal, Research & Development Tax Credits Republicans are slated to take control of the legislative and executive branches this coming year, and shifts in fiscal policy will affect taxes, tariffs, and broader economic strategies. KBKG Insight: While there is excitement and talk around “tax cuts,” taxpayers should monitor this changing landscape, … Read More

Key Changes in Accounting Method Procedures for Section 174 Research Expenditures
10/02/2024The IRS has recently issued Rev. Proc. 2024-34, which modifies the method change procedures for specified research or experimental (SRE) expenditures under Section 174. This updated guidance provides important changes for taxpayers seeking to comply with the amended rules following the 2017 Tax Cuts and Jobs Act (TCJA). Here’s a breakdown of the key provisions … Read More

Senate Votes on Tax Relief Bill for IRC 174 R&E Expenditures, Bonus Depreciation and Section 163(j)
08/01/2024By Jonathan Tucker | Principal, Research & Development Tax Credits In a significant move after months of waiting, the Senate voted on the highly anticipated tax relief for American Families and Workers Act, aimed at easing the financial burden on millions of Americans. Championed by Senate Majority Leader Chuck Schumer to bring a vote in … Read More

KBKG Tax Insight: Identifying Expenditures for the New IRC 174 Capitalization Requirements
07/24/2024By Jonathan Tucker | Principal, Research & Development Tax Credits With the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, significant changes were made to the Internal Revenue Code (IRC), notably to IRC 174. Starting in the tax year 2022, businesses can no longer fully expense their research and experimental (R&E) costs … Read More