Short answer. You can claim both. Arizona runs its own credit on Arizona research and the federal Section 41 credit runs on your nationwide research, so the same in-state work earns both. Arizona pays 24 percent on the first $2.5 million of qualifying expenses over a base and 15 percent above that through 2030. Neither credit is refundable for most filers: Arizona's 75 percent small-business cash refund ended for tax years beginning in 2026 and later.
Key facts
| Claim both? | Yes, on the same Arizona research |
|---|---|
| Federal rate | 20% regular / 14% ASC |
| Arizona rate | 24% on first $2.5M over base, 15% above (through 2030) |
| Arizona refundable? | No, for tax years beginning in 2026 and later |
| Forms | Form 6765 (federal) + Form 308 (Arizona) |
Two credits on the same research
Arizona computes its own credit using Section 41 mechanics on Arizona expenses; the federal credit runs on your nationwide expenses.
The federal Section 41 credit is claimed on Form 6765 with your federal return. Arizona's credit is claimed on Form 308 with your Arizona return. They are separate credits with separate forms, and the same research performed in Arizona can support both in the same tax year.
Arizona starts from the federal definition of qualified research but applies its own rates to the portion of that research conducted in Arizona, so the work you document for the federal claim is the starting point for the state one.
Federal Section 41 vs. Arizona, factor by factor
Arizona has a higher headline rate, but it reaches only Arizona research.
| Factor | Federal Section 41 | Arizona |
|---|---|---|
| What it is | Credit for increasing research activities | Credit for increased research activities |
| Credit rate | 20% regular / 14% ASC | 24% on the first $2.5M over base, 15% above (20%/11% from 2031) |
| Refundable | No - a QSB may offset up to $500,000 of payroll tax under Section 41(h) | No for tax years beginning in 2026 and later (the 75% refund for employers under 150 employees applied only to earlier years) |
| Carryforward | 20 years, with a 1-year carryback | 10 years, no carryback |
| Where research must occur | United States | Arizona only |
| How you claim it | Form 6765 with the federal return | Form 308 with the Arizona return |
| Claim alongside the other? | Yes, on the same underlying QRE | Yes, on the same underlying QRE |
| Documentation | Four-part test and QRE substantiation (Treas. Reg. 1.41-4) | Same federal QRE, limited to Arizona research |
Where Arizona differs from federal
Three differences matter most when you claim both.
Rate and refund. Arizona's 24 percent first-tier rate is higher than the federal 20 percent. For tax years beginning in 2026 and later, the Arizona credit is nonrefundable: HB 4168 ended the 75 percent cash refund that companies with fewer than 150 employees could claim through the Arizona Commerce Authority. The federal credit is not refundable either, though a qualified small business can offset up to $500,000 of payroll tax under Section 41(h).
Scope and time. Only research conducted in Arizona counts toward the state credit, and the rates step down to 20 and 11 percent for tax years after 2030. Unused Arizona credit carries forward 10 years.
One evidence base for both
The documentation that proves the federal claim is what Arizona relies on too.
Because Arizona uses the federal definition of qualified research, the four-part test analysis and the wage, contractor, and supply records that substantiate your federal credit under Treas. Reg. 1.41-4 are the same records Arizona asks for, limited to the in-state share. You build the evidence once and use it for both filings.
R&D Binder documents the federal Section 41 four-part test that both credits stand on, with Arizona handled as a state add-on from the same evidence. Whether your facts qualify, and which credits to claim, is a determination for your CPA.
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. § 41 (credit for increasing research activities) - Cornell Law School, Legal Information Institute
- IRS, About Form 6765 - Internal Revenue Service
- Treas. Reg. § 1.41-4 (recordkeeping and substantiation of qualified research) - 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.