Key figures
Arizona advisory
2026, with sources
- R&D credit
- 24% / 15%24% of the first $2.5 million of Arizona research expenses over the base, 15% above.
- Refund for small businesses
- Repealed from 2026H.B. 4168 repealed the 75% refund for tax years beginning from January 1, 2026.
- Rate from 2031
- 20% / 11%Tax years beginning after Dec 31, 2030: 20% of the first $2.5 million, 11% above.
The R&D credit, now without a refund
Arizona’s research credit is 24% of the first $2.5 million of qualified Arizona research expenses above a base amount and 15% above that, against corporate income tax. For tax years beginning after December 31, 2030, the statute steps the rates down to 20% and 11%. Unused credit carries forward for ten years.
Until 2025, small businesses with fewer than 150 employees could apply to the Arizona Commerce Authority to have 75% of the unused credit refunded, out of a statewide pool of $5 million a year. H.B. 4168 repealed that refund for tax years beginning from January 1, 2026, so for a pre-revenue startup the credit is now a carryforward, not cash. The same bill repealed the corporate New Employment Credit from 2026.
The Commerce Authority also runs the Angel Investment Program, a tax credit for investors in qualified small businesses, capped at $2.5 million of credits a year statewide and authorized through June 30, 2031. Some Arizona startups use it in their seed rounds.
Where founders go wrong
Arizona is light on payroll: a flat 2.5% income tax, a low UI wage base and no paid leave program. The care goes into TPT classifications and tracking R&D credit carryforwards.
- Calling TPT a sales tax: the tax is on the seller, which changes how contracts and invoices should read.
- Counting SaaS toward the $100,000 retail threshold, or ignoring the physical presence an Arizona employee creates.
- Missing the annual report date, which is tied to the registration anniversary.
- Budgeting a cash R&D refund for 2026 or later: the refund was repealed.
- Withholding at the default rate without giving employees Form A-4.
The federal baseline
This page covers what Arizona adds. The federal rules underneath it apply here too.
Common questions
Is the Arizona R&D credit refundable?
Not any more. Through 2025, a company with fewer than 150 employees could apply to the Arizona Commerce Authority to receive 75% of its excess credit in cash, from a $5 million yearly statewide pool. H.B. 4168 repealed that refund for tax years beginning from January 1, 2026. The credit still offsets Arizona corporate income tax, and what can’t be used carries forward for ten years.
Why is Arizona sales tax different for SaaS?
Usually because SaaS is a personal property rental in Arizona, not a retail sale. That changes which classification the TPT license lists, whether economic nexus applies and what cities charge. Founders who copy another state’s sales tax setup tend to get all three wrong.
Advisory next door
- CACalifornia advisoryCalifornia has a 15% research credit that never expires but is not refundable, does not follow federal QSBS, and caps business credits at $5 million a year through 2029.
- NVNevada advisoryNo income tax means no R&D credit and no QSBS question. Incentives are GOED abatements, and the real risks are in wage rules and Secretary of State filings.
- UTUtah advisoryUtah’s research credit is non-refundable, with a 5% part that carries forward 14 years and a 7.5% part that doesn’t. QSBS follows the federal rule.
- COColorado advisoryNo statewide R&D credit, only the Enterprise Zone program. QSBS follows the federal rule. Most mistakes happen at the city level, in Denver especially.
- NMNew Mexico advisoryNew Mexico’s R&D credit can offset gross receipts and withholding tax and is partly refundable to small businesses. Combined-report elections lock in for seven years.
Founder guides on this
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
- ComplianceFirst-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
More of the Arizona guide
- AccountingAccounting and state tax in ArizonaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in ArizonaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in ArizonaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in ArizonaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in ArizonaRegistering to do business, annual reports, franchise tax and the filing calendar
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- Arizona Commerce Authority — Research & Development Tax Credit
- Arizona Legislature — H.B. 4168 (2026) fact sheet, as enacted
- Arizona Revised Statutes § 43-1168 — Credit for increased research activity
- Arizona Commerce Authority — Angel Investment Program (2026)
- Arizona Department of Revenue — Corporate Income Tax
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.