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Arizona Tax Credits

Corporations in Arizona pay a tax rate of 6.968% on taxable income. Arizona has enacted a number of credits available to corporations (and individuals) to reward taxpayers for engaging in activities that protect the environment and bring jobs into the state. Some of the credits available are described below:

Commercial and Industrial Solar Energy Credit

To qualify for the Commercial and Industrial Solar Energy Credit, a taxpayer is required to install one or more solar energy devices for commercial or industrial purposes in their trade or business.  The installed cost of the device is eligible for a 10% nonrefundable credit. The taxpayer may not claim more than $25,000 in credit on a single building or more than $50,000 in credit in a single tax year. The credit may be carried forward for 5 years. The credit is available for devices installed after December 31, 2005 and before January 1, 2019.

Environmental Technology Facility Credit

Expenses incurred in constructing a qualified technology manufacturing, processing, or producing facility that involves recycled materials or renewable energy may be eligible for a nonrefundable credit of 10% of the amount expended in the taxable year to construct the building or make building improvements, including machinery and equipment. The credit may not exceed 75% of the tax liability. The facility must cost an aggregate of at least $20 million within the first 5 years of when construction or installation begins. Further, the facility must be owned by the manufacturer, processor, producer, or leased for a term of 5 years or more. The credit may be carried forward for 15 years.

Research and Development Tax Credit

Arizona enacted the Research and Development Tax Credit for tax years beginning after December 31, 1992. In 2010, the credit percentages were increased and taxpayers are eligible for a 22% credit on the first $2,500,000 of qualified research expenditures over a base period. Taxpayers are eligible for a 13% credit on qualified expenditures that exceed the $2,500,000. Arizona increased the rates to 24% and 15% for tax years 2011 through 2017.  Further, Arizona made the credit partially refundable for tax years 2010 and forward. If a taxpayer employs less than 150 people and receives a certificate from the Arizona Commerce Authority and the credit exceeds the taxpayer’s liability, the taxpayer may receive a refund of up to 75% of the excess credit. The remaining 25% is forfeited. For taxpayers who do not meet the requirements for the refundable credit, the credit may be carried forward for 15 years.

Agricultural Pollution Control Equipment Credit

A nonrefundable credit is available to taxpayers engaged in commercial production of livestock, livestock products, agricultural, horticultural, viticultural, or floricultural crops or products. Expenditures incurred for tangible personal property primarily used in a taxpayer’s trade or business to control or prevent pollution may be eligible for a credit of 25%, not to exceed $25,000. Expenditures include a portion of a building, installation, excavation, machine, or device, or any reconstruction, replacement, or improvement to control, monitor, prevent, or reduce air, water, or land pollution. The credit may be carried forward for 5 years.

Military Reuse Zone Credit

Credit eligible activities for the Military Reuse Zone Credit include net increases in employment of full-time employees working in a military reuse zone, and who are primarily engaged in providing aviation or aerospace services, or in manufacturing, assembling, or fabricating aviation or aerospace products. A nonrefundable credit of $500 is allowed in the first year of employment and increases by $500 each year until it reaches $2,500 in the fifth year of employment. The credit is available for tax years beginning after December 31, 1992 and the credit may be carried forward for 5 years.