Arizona pays 24 percent on the first $2.5 million, one of the highest state rates.

Rate	24% (first $2.5M over base), 15% (excess)
Refundable	No, for tax years beginning in 2026 and later
Carryforward	10 years

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

• Taxable years beginning before December 31, 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.
• Taxable years beginning from and after December 31, 2030. 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 step-down is statutory; it is not contingent on legislative action and is built into the current code, at A.R.S. section 43-1168(A)(1)(b) and (c).

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.

For tax years beginning before January 1, 2026, a taxpayer that qualified for the credit and had fewer than 150 employees could apply to the Arizona Commerce Authority (ACA) for a certificate and a refund of 75 percent of the excess credit, the amount by which the allowable credit exceeded Arizona income tax for the year. The program was capped at $5 million a year statewide.

HB 4168 (Laws 2026, chapter 140), signed June 13, 2026, repealed the ACA refund program at A.R.S. §41-1507 and removed the refund option from A.R.S. §43-1168. The repeal applies to taxable years beginning from and after December 31, 2025. For tax years beginning in 2026 and later, the Arizona credit is nonrefundable.

The credit itself does not require ACA pre-approval; taxpayers compute it on Form 308 and claim it on the return.

Unused credit carries forward 10 years for credits from taxable years beginning after December 31, 2021, and 15 years for older credits.

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 Form 6765 Section G appendix (mandatory for non-exempt filers). 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).
• Carryforward tracking (10-year window for unused credit).
• Filing notes for your CPA: which Form 308 lines and statutory references apply.

We do not file Form 308 or sign the Arizona return. That stays with your CPA. R&D Binder produces the workpaper; your CPA files.

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 employees, a tax year beginning in 2026, 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.
• Carryforward. With Arizona income tax liability of only $5,000 for the year, the credit offsets that $5,000 and the remaining $285,400 carries forward for up to 10 years. There is no cash refund for a tax year beginning in 2026; the 75 percent refund applied only to tax years beginning before 2026.
• Total engagement cost. SaaS Standard tier ($4,995, 6 to 25 FTE) plus Arizona state workpaper add-on ($995). Total $5,990.

The rate step-down at December 31, 2030 is worth flagging in workpaper planning. A company expecting to grow its Arizona QRE materially between now and 2031 earns more credit per dollar on research done in the 24-percent years, before the rates drop.

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 also scrutinizes the Arizona in-state performance documentation.

The binder R&D Binder produces is built to that standard from the federal side, and the Arizona workpaper carries employee location attribution 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 refund program, available for tax years beginning before 2026).
• Arizona Legislature HB 4168 as enacted (Laws 2026, chapter 140), which repealed A.R.S. §41-1507 and the refund option in §43-1168 for taxable years beginning from and after December 31, 2025.
• Arizona Legislature A.R.S. §43-1168 (current text).
• Joint Legislative Budget Committee FY2027 budget bill summary.
• Eide Bailly Arizona House Bill 4168 alert (July 13, 2026), secondary source.
• 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. The Arizona Commerce Authority ran the refund program for tax years beginning before 2026. Rate citations, the 2031 rate-drop, and the HB 4168 refund repeal reflect statutory text as of September 2026. Confirm current rules with your CPA or the DOR before filing.

• Arizona R&D credit rate
• Arizona vs the federal credit
• Arizona R&D credit carryforward
• Arizona R&D credit refund
• 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
• Illinois R&D credit
• Indiana R&D credit