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

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