Short answer. Arizona pays 24 percent on the first $2.5 million of qualifying expenses over a base and 15 percent on the excess, for taxable years beginning before December 31, 2030. The rates drop to 20 and 11 percent for taxable years beginning from and after that date. The credit is nonrefundable for tax years beginning in 2026 and later, after HB 4168 ended the 75 percent small-business cash refund.
Key facts
| Rate (TYs beginning before Dec 31, 2030) | 24% on first $2.5M over base, 15% on excess |
|---|---|
| Rate (TYs beginning from and after Dec 31, 2030) | 20% on first $2.5M, 11% on excess |
| Refundable | No, for tax years beginning in 2026 and later |
| Carryforward | 10 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.
For taxable years beginning 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.
For taxable years beginning from and after December 31, 2030, 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 has ended
For tax years beginning in 2026 and later, unused credit carries forward instead of paying cash.
For tax years beginning before January 1, 2026, a taxpayer with fewer than 150 employees could apply to the Arizona Commerce Authority for a certificate and a refund of 75 percent of its excess credit. The program was capped at $5 million a year statewide.
HB 4168 (Laws 2026, chapter 140), signed June 13, 2026, repealed that refund for taxable years beginning from and after December 31, 2025. The credit needs no pre-approval, and unused credit carries forward 10 years for credits from taxable years beginning after December 31, 2021.
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
- Arizona HB 4168 as enacted (Laws 2026, ch. 140) - Arizona Legislature
- A.R.S. 43-1168 (Credit for increased research activities) - Arizona Legislature
- Joint Legislative Budget Committee, FY2027 budget bill summary - Arizona Joint Legislative Budget Committee
- Eide Bailly, Arizona House Bill 4168 alert (July 13, 2026) - Eide Bailly
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.