Arizona pays 24 percent on the first $2.5 million, and small SaaS gets cash.

Rate	24% (first $2.5M over base), 15% (excess)
Refundable	Up to 75% cash refund (under 150 FTE)

Arizona structures the credit as a two-tier rate against qualifying expenses in excess of a base amount.

• Through tax year 2030. 24 percent on the first $2.5 million of qualifying expenses (above the base), plus 15 percent on the excess above $2.5 million.
• Tax year 2031 and later. 20 percent on the first $2.5 million, plus 11 percent on the excess.

The 24 percent first-tier rate is one of the highest state rates in the country and meaningfully above the federal Regular credit rate of 20 percent. The drop in 2031 is statutory; it is not contingent on legislative action and is built into the current code.

Statutory citations: Arizona Revised Statutes §43-1168 (corporate credit, enacted 1992) and §43-1074.01 (individual credit for passthrough entities, enacted 1999). Form: Form 308 (Credit for Increased Research Activities). The Arizona QRE definition tracks federal IRC §41 with the Arizona in-state performance modifier.

Arizona's distinctive feature for early-stage SaaS is the refundable program administered by the Arizona Commerce Authority (ACA). A taxpayer that is otherwise qualified for the nonrefundable credit and employs fewer than 150 full-time employees worldwide can apply to the ACA for approval of a refund of 75 percent of the current year's excess credit amount.

The refundable component runs as a separate ACA-administered process. The applicant submits a refund application, the ACA reviews and approves (or denies), and the Department of Revenue processes the refund. The 75 percent applies to the amount by which the allowable credit exceeds the taxpayer's Arizona income tax liability for the year.

The non-refundable credit does not require ACA pre-approval; taxpayers compute it on Form 308 and claim it on the return. Only the refund-conversion path requires the application.

Excess credit beyond what is refunded (or beyond the taxpayer's tax liability for non-applicants) carries forward 5 years.

R&D Binder produces federal Section 41 documentation from your GitHub commit history. The binder supports your federal Form 6765 and, starting tax year 2026, the mandatory Form 6765 Section G appendix. The same documentation foundation supports Arizona because the Arizona QRE definition references federal §41.

The Arizona state credit workpaper is a $995 add-on to the standard binder engagement. It produces:

• An Arizona-attributable QRE breakdown (employee, contractor, and supplies expenses tied to research conducted in Arizona, using the same business-component partition as the federal binder).
• Form 308 input values: the 24 percent first-tier computation against the first $2.5M above the base, plus the 15 percent second-tier computation against the excess (or the 20 and 11 percent rates for tax year 2031 and later).
• FTE count documentation for the refundability eligibility test (under 150 full-time employees worldwide).
• Refund application support: the materials your CPA forwards to the Arizona Commerce Authority for the 75 percent refund election.
• Carryforward tracking (5-year window for non-refunded excess credit).
• Filing notes for your CPA: which Form 308 lines, statutory references, and the refund-versus-carryforward decision matrix.

We do not file Form 308, submit the ACA refund application, or sign the Arizona return. That stays with your CPA. R&D Binder produces the workpaper; your CPA files and applies.

A worked example. A Phoenix SaaS company with 14 engineers, $3.2M in qualifying wages (federal QRE pool), 11 engineers physically located in Arizona, 32 total worldwide employees (qualifies as under 150 FTE), and minimal Arizona income tax liability for the year.

• Federal Section 41 credit. Computed on the full $3.2M federal QRE pool through Form 6765, claimed by the CPA. R&D Binder produces the binder, QRE workpaper, and Form 6765 Section G appendix.
• Arizona credit (gross). Computed on the Arizona-attributable portion of QREs. Roughly $2.51M ($3.2M times 11/14 engineer location ratio). Assuming a base amount of approximately $1.3M, the credit covers $1.21M of incremental QRE. At the 24 percent first-tier rate (all under the $2.5M tier ceiling), the gross credit is roughly $290,400.
• Refund election. With Arizona income tax liability of only $5,000 for the year, the excess credit is $285,400. The 75 percent refund on the excess yields roughly $214,050 in cash from the Department of Revenue after ACA approval. The remaining 25 percent of the excess ($71,350) carries forward for up to 5 years.
• Total engagement cost. SaaS Standard tier ($4,995, 6 to 25 FTE) plus Arizona state workpaper add-on ($995). Total $5,990.

The 2030 rate-drop sunset is worth flagging in workpaper planning. A company expecting to grow its Arizona QRE materially between now and 2031 benefits from accelerating qualifying activity into the 24-percent-tier years where possible, and from claiming credit promptly rather than carrying forward into the lower-rate years.

The Arizona Department of Revenue examines R&D credit claims under substantially the same substantiation expectations as the IRS under federal Section 41: business-component identification, four-part-test rationale, contemporaneous evidence, QRE allocation by employee, contractor, and supplies. The DOR additionally scrutinizes the Arizona in-state performance documentation; the Arizona Commerce Authority separately reviews the under-150-FTE test for refund applications.

The binder R&D Binder produces is built to that standard from the federal side, and the Arizona workpaper carries employee location attribution and FTE-count reconciliation into the same business-component structure.

Our standard scope ends at delivering the binder and the state workpaper. Audit-defense engagement for an Arizona DOR examination is a separate scope at $250 per hour, scoped per-incident. We do not represent before the Arizona DOR or the ACA; that stays with your CPA or your Arizona tax controversy attorney.

• Arizona Revised Statutes §43-1168 (Credit for increased research activity, corporate).
• Arizona Revised Statutes §43-1074.01 (Credit for increased research activities, individual / passthrough).
• Arizona Commerce Authority Research and Development Tax Credit Program overview.
• Arizona Department of Revenue Credit for Increased Research Activities (Form 308).
• Arizona Commerce Authority R&D Program Rules & Guidelines (administrative rules for the refundable component).
• IRS Form 6765 (federal Credit for Increasing Research Activities) - Arizona QRE definition tracks federal §41.

This page is general informational content, not tax advice for any specific taxpayer. The Arizona R&D credit is administered by the Arizona Department of Revenue (non-refundable) and the Arizona Commerce Authority (refundable component application). Rate citations, FTE thresholds, and the 2031 rate-drop reflect statutory text and ACA published guidance as of May 2026. Confirm current rules with your CPA, the DOR, or the ACA before filing.

• The Section 41 four-part test
• What is a qualified research expense (QRE)?
• Form 6765 and Section G
• Connecticut R&D credit
• Delaware R&D credit
• Iowa R&D credit
• Maryland R&D credit