Short answer. Arizona pays 24 percent on the first $2.5 million of qualifying expenses over a base and 15 percent on the excess, through tax year 2030. The rates drop to 20 and 11 percent starting in 2031, and small businesses can convert excess credit to a 75 percent cash refund.
Key facts
| Rate (through 2030) | 24% on first $2.5M over base, 15% on excess |
|---|---|
| Rate (2031 on) | 20% on first $2.5M, 11% on excess |
| Refundable | Up to 75% cash refund (under 150 FTE) |
| Carryforward | 5 years |
| Form | Form 308 |
The two-tier rate, and the 2031 step-down
Arizona applies two rates by expense level, and both drop on a fixed schedule.
Through tax years beginning on or before December 31, 2030, the credit is 24 percent of the first $2.5 million of qualifying expenses above a base amount, plus 15 percent of the excess above $2.5 million. The 24 percent first-tier rate is one of the highest state rates in the country.
Starting January 1, 2031, the rates drop to 20 percent on the first $2.5 million and 11 percent on the excess. The step-down is written into the statute, not contingent on a future vote, so it is worth factoring into multi-year planning now.
The small-business cash refund
Smaller companies can turn an unused credit into cash.
A taxpayer that qualifies for the credit and employs fewer than 150 full-time employees worldwide can apply to the Arizona Commerce Authority for a refund of 75 percent of the current year's excess credit, paid in cash after the Authority approves the application.
The non-refundable credit needs no pre-approval; only the refund-conversion path requires the application. Excess credit that is not refunded carries forward for five years.
How the rate applies
The rate sits on top of a base and an in-state rule.
Both tiers apply to qualifying expenses above a base amount, and the Arizona QRE definition tracks federal Section 41 with an Arizona in-state performance modifier, so only research conducted in Arizona counts. The credit is claimed on Form 308.
More on Arizona's R&D credit
The full state overview, the federal Section 41 work it builds on, and related state guides:
Sources
Every claim on this page traces to a primary authority. Each source below is independent and verifiable.
- Arizona Commerce Authority, Research and Development Tax Credit Program - Arizona Commerce Authority
- Arizona Department of Revenue, Credit for Increased Research Activities (Form 308) - Arizona Department of Revenue
- 26 U.S.C. ยง 41 (credit for increasing research activities) - Cornell Law School, Legal Information Institute
Get documentation built to survive an exam
R&D Binder produces the federal Section 41 binder and the Arizona state workpaper from one engagement, both built to survive an exam.