Plan ahead for unused and refundable Arizona research tax credits

Your Guide to State, Local, Federal, Estate + International Taxation

Arizona passed a new law last year (ARS § 43-1074.01) adjusting the 15 consecutive taxable years carryforward of unused R+D credits. Beginning from and after December 31, 2021, unused Arizona research tax credits may now be carried forward to the next ten consecutive taxable years – a reduction of five years. Taxpayers will need to track credits generated by year and adjust their carryforward schedules accordingly. Criteria for filing of the credits continues to be a hot topic for this lucrative credit at both regular and refundable levels. Refundable credits allow a taxpayer who literally owes no tax to receive a check from the Arizona Department of Revenue – a huge boon to cashflow in these challenging times.

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Arizona refundable credits for the 2021 tax year have already been exhausted as there is a limited pool of $5 million that is typically exhausted almost immediately upon the application window opening – it’s a very popular program.

Arizona Commerce Authority handles the refundable application process via the EASY website. The EASY application site opens on the first business day of the new year promptly at 8:00 am. It’s imperative that taxpayers have done the necessary project analysis to identify qualifying activities and expenses for the applicable year as well as for years in the historical base period.

Analysis prior to filing involves a technical discussion of development activities that varies by industry (e.g., life sciences, computer science, engineering, physical sciences and how they relate to a given business component). There is also an analysis of supporting documentation to include cost data and time spent creating the new business component.

This highly technical discussion is best performed by someone extremely well versed in the R+D tax credit and starting now is good planning. Curious how you might be eligible for the Arizona research tax credits? Contact Steve Roark, CPA, at stever@hhcpa.com.

Steve Roark, CPA