The Arizona R&D tax credit, explained
Arizona gives a 24% state R&D credit on the first $2.5 million of qualified spend, with a partial cash refund for small companies.
Last verified July 2026 against Arizona Department of Revenue guidance.
The short answer
Arizona has an active state R&D tax credit. It is one of the higher rates in the country, and the state also offers a partial cash refund for smaller companies that qualify.
How the Arizona credit works
The rate is 24% on the first $2.5 million of qualified research spending above a base amount, then 15% on any amount above that. The credit is not automatically refundable, but companies with fewer than 150 employees can apply to the Arizona Commerce Authority for a refund of 75% of their unused credit.
Unused, non-refunded credit carries forward for 10 years. If a company elects the cash refund on part of its credit, that portion cannot also be carried forward.
How it stacks with the federal credit
Arizona uses the same qualified research expense rules as the federal credit, so a company's research study supports both claims at once.
Example: an Arizona hardware startup with 12 engineers and an average salary of $105,000 spends $1,260,000 on qualified research. If the base amount is $760,000, the excess is $500,000. At Arizona's 24% rate, that is a $120,000 state credit. If the company has fewer than 150 employees, gets ACA certification, and has more credit than tax liability, it can cash out 75% of the unused portion, up to $100,000, instead of waiting to carry it forward. The same $1,260,000 in spending can generate a federal credit of roughly $76,000 to $126,000, part of which a company under $5 million in revenue can apply against up to $500,000 of payroll taxes a year.
Because Arizona's rate is high and the refund option gives real cash back to pre-profit companies, this is one of the stronger state credits to stack with the federal claim.
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Eligibility and how to claim it
Any company doing qualified research in Arizona can claim the base nonrefundable credit on its state return. No pre-approval is required for that part.
The cash refund option is different. It requires an application to the Arizona Commerce Authority and a Certificate of Qualification before the company files its tax return. Eligibility depends on employee count, under 150, and having more credit than current year tax liability. The statewide refund pool is capped at $5 million a year, and each company's refund is capped at $100,000.
Companies claim the credit on Arizona Form 308 for corporations, or Form 308-I for individual owners of pass-through entities, filed with the Arizona Department of Revenue. Claimship prepares the research study and expense calculations. The company's CPA files the actual Arizona return and, if applicable, the ACA refund application.
Official source: Arizona Department of Revenue.
Carryforward and deadlines
The nonrefundable credit has no application deadline. It is calculated and claimed directly on the annual Arizona tax return, with a 10 year carryforward for unused amounts.
The refund program is different. The Arizona Commerce Authority accepts applications starting the first business day of the calendar year after the fiscal year closes, and reviews them in the order received. Because the statewide $5 million pool can run out, companies that want the cash refund should apply as early as possible.