Is Arizona's R&D credit still refundable?

HB 4168 (Laws 2026, chapter 140) was signed June 13, 2026. It repealed A.R.S. 41-1507 and removed the refund option from A.R.S. 43-1168 for taxable years beginning after December 31, 2025. The research credit itself is still there, at 24 percent on the first $2.5 million over the base and 15 percent above that for taxable years beginning before December 31, 2030. What is gone is the ability to turn the unused part into cash.

1. Size test. The taxpayer had to have fewer than 150 employees.
2. Certificate. It applied to the Arizona Commerce Authority for a certificate of qualification.
3. Return. It submitted the certificate with its return to claim the refund.
4. Amount. The refund was 75 percent of the credit that exceeded the tax. The remaining 25 percent was waived, not carried forward.
5. Cap. The whole program was capped at $5 million a year statewide.

A pre-profit SaaS company with 40 employees has Arizona qualifying expenses $500,000 over its base in both 2025 and 2026. At 24 percent, that is $120,000 of credit each year, and it owes no Arizona tax in either year.

For 2025, assume it received a certificate for the full amount. It would get $90,000 in cash (75 percent of $120,000) and waive the other $30,000. For 2026, there is no refund to apply for. The full $120,000 carries forward and can be used against Arizona tax over the next 10 years. The old route traded a quarter of the credit for cash now. The new one keeps every dollar, but the company only sees the value once it owes tax.

The credit is now nonrefundable. Unused credit carries forward 10 years, or 15 years for credits from taxable years beginning before 2022. For a company that expects to reach Arizona taxable income within that window, the credit still has real value, just later. Each year's credit keeps its own expiry, so the carryforward schedule needs to show when every layer was earned.

Credit earned in 2026 may not offset Arizona tax until years later, and it is only worth what the documentation behind it can support at that point. R&D Binder produces the federal Section 41 documentation the Arizona credit rests on: business components, the four-part test analysis, and the qualified research expense workpaper, built from your commit history and payroll. Your CPA files the Arizona return, and whether your facts qualify is the CPA's call.

• Arizona's R&D credit (full overview)
• Arizona R&D credit rate
• Arizona vs the federal credit
• Arizona R&D credit carryforward
• The Section 41 four-part test
• What is a qualified research expense (QRE)?
• Form 6765 and Section G
• California R&D credit
• Idaho R&D credit

• A.R.S. 43-1168 (Credit for increased research activities) - Arizona Legislature
• Arizona HB 4168 as enacted (Laws 2026, ch. 140) - Arizona Legislature
• Joint Legislative Budget Committee, FY2027 budget bill summary - Arizona Joint Legislative Budget Committee
• Arizona Department of Revenue, 2025 Form 308 instructions - Arizona Department of Revenue
• Eide Bailly, Arizona House Bill 4168 alert (July 13, 2026) - Eide Bailly