The R&D Tax Credit Aspects of Arizona
Arizona local leaders and businesses are
shifting the focus toward innovation as a key component in
their economic strategy. Both large and small companies
are making increasing R&D investments in the state.
The Arizona economy has grown in line with the nation as a
whole at about 2.5 percent in 2014, however, increasing
exposure to a wide range of high tech manufacturing activities
could help boost those numbers while the real estate market
continues to gain steam recovering from the financial crises.
General Motors Company
is opening an IT Center in Chandler that should eventually
bring 1,000 jobs to the area. Comcast Corporation has
announced that it is creating 1,125 new jobs at their customer
support center in Tucson. Northern Trust Corporation
plans to add 1,000 workers to its office in Tempe over the
next three years. Revel Systems Inc., which
creates platforms for merchants using iPads as their point of
sale, is expanding in Scottsdale and a number of other
merchant-based technology providers are also expanding in the
state. All of these companies share one thing in common:
a commitment to innovation.
throughout the state are innovating as well. CampusLogic
Inc. in Gilbert offers software to streamline the financial
aid application process for students. The program cuts
costs and increases student and faculty satisfaction. eVisit,
also of Gilbert, produces software that gives patients access
to physicians online so they may receive treatment, billing,
and e-prescriptions through high-resolution video conferences.
RBar Energy LLC. of Tucson, makes easy to eat energy bars for
athletes and food enthusiasts.
Public and private
programs throughout the state are also available to help
stimulate innovation. The Arizona Innovation Accelerator
Fund provides access to financing for innovative start-ups. In
addition, the Arizona Innovation Challenge offers a business
plan competition that awards qualified, innovative start-ups
and early stage companies capital to grow their businesses in
State run programs and
universities are also innovating. The Arizona Department
of Transportation recently integrated state-of-the-art facial
recognition software into its facilities to aid in the process
of issuing state credentials.
The University of
Arizona recently formed a partnership with Uber Inc., the San
Francisco ride hailing tech company, in order to improve
optics used in the mapping technology which is central to
automated cars. Innovation is a central component
of any successful business strategy. Federal and state
tax credits are available to support and stimulate this
innovation in Arizona.
The Federal Research
& Development Tax Credit
Enacted in 1981, the federal Research and
Development (R&D) Tax Credit allows a credit of up to 13%
of eligible spending for new and improved products and
processes. Qualified research must meet the following four
- New or improved products,
processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
Eligible costs include
employee wages, cost of supplies, cost of testing, contract
research expenses, and costs associated with developing a
patent. On December 19, 2014, President Obama signed the bill
extending the R&D Tax Credit for the 2014 tax year.
A similar extension is expected for 2015.
Arizona State Research
& Development Tax Credit
The Arizona R&D Tax Credit was enacted
in 1992 for corporations and in 1999 for individuals. The tax
credit is equal to the following:
2011 - 2017:
Credit is equal to 24% of the first $2.5 million in qualifying
expenses and 15% of the qualifying expenses in excess of $2.5
2018 and on: Credit is equal to 20% of the first
$2.5 million in qualifying expenses and 11% of the qualifying
expenses in excess of $2.5 million.
Companies are eligible
for a refundable R&D credit if the credit exceeds its
current year tax liability and the company employs less than
150 employees worldwide. The Arizona Commerce Authority
approves up to $5 million in refunds per year and applications
for the refundable credit are on a first come first serve
Phoenix is the fastest growing
technological area in Arizona. The diversity of industries
expanding and relocating to the region is impressive.
Financial services, tech related industries, warehouse
distribution facilities, and life science companies all
see the area as a beneficial center of operations.
As a result, an
innovation cluster or technology hub is beginning to emerge.
Some locals like to call it the “Silicon desert”. So
far, it is a collection of homegrown technology companies in
the Phoenix area with some scattered well recognized names
like Go Daddy Group Inc. and InfusionSoft.
In addition, there are
dozens of accelerators and incubators offering key resources
and mentorship, not to mention a few angel investment groups
like Arizona Tech Investors and Desert Angels that provide
financing to cash strapped start-ups with innovative business
Some local leaders have
a vision to reinvent the local economy and gear it towards
advanced industries as opposed to its previous and current
focus on real estate.
organization is a new public-private partnership that is
advancing a strategy to encourage growth and enhance STEM
education. The goal for the organization is
to create thousands of jobs in these advanced industries.
People in the Phoenix area that work in advanced industries
earn on average over $90,000, compared to about $50,000 in
Programs like Velocity
help foster innovation by providing access to R&D centers,
organizing collaboration efforts and linking innovative
companies with financing options. Some other Arizona
innovation initiatives are discussed below.
The Arizona Innovation Accelerator Fund is
an $18.2 million loan participation program funded through the
U.S. Department of Treasury’s State Small Business Credit
Initiative (SSBCI) and managed by the Arizona Commerce
Authority (ACA). The goal of the program is to stimulate
financing of small businesses and manufacturers in order to
create jobs. Innovative companies applying for financing
packages through the program receive priority if they are in
target industries such as aerospace and defense, semiconductor
manufacturing, optics, bioscience and renewable energy.
The Arizona Innovation Challenge (AIC),
powered by the ACA, awards the most money in the country for a
technology commercialization challenge – $3 million to the
world’s most promising technology ventures. Awards range from
$100,000 to $250,000 per company.
With more than 1,400
applications received each year, the program is among the many
opportunities available to innovators which have made Arizona
their hub for entrepreneurial activity and startup
success. Typical companies that apply for the award are
from various industries including IT software, IT hardware,
advanced manufacturing, life sciences, advanced manufacturing,
aerospace, and defense.
Arizona DOT &
Facial Recognition Technology
The Arizona Department of Transportation
(DOT) recently integrated state-of-the-art facial recognition
software into its facilities in order to aid in the process of
issuing state credentials. The award winning NeoFace
technology by NEC Corporation uses a biometric solution
through a cloud platform to help reduce identity theft.
The technology searches
through photographs and images and compares driver’s licenses
and identification cards contained in the database to live
applicants and other photos. The software analyzes
applicants’ facial features and alerts workers if a new photo
matches one that is already in the driver’s license database
for a different person. Previously, employees compared new and
old photos visually. Since the program was implemented
early in 2015, the Arizona DOT has increased the potential
number of fraud cases it has detected by over 800 percent.
recognition software is a quickly emerging technology that
will likely be pervasive within the short term future.
Identity theft is a huge and growing problem worldwide.
R&D expenses associated with combating the phenomenon are
well into the billions of dollars across a broad range of
Arizona State University (ASU) is a
research oriented learning institution. In 2013, ASU
spent about $405 million on R&D expenditures despite the
fact that they have no medical school. That figure was
more than well known national research institutions like
Carnegie Mellon University and Tufts University.
Since 2003, ASU
research, which spans across a wide range of technologies, has
resulted in 2,000 plus inventions, over 80 start-ups, over 175
active license agreements, and at least $500 million in
venture capital funding. Commercial space is available
for leasing at the university’s 145,000 square foot SkySong
innovation center which is designed to create an ecology of
collaboration and innovation among technology companies and
Core research strengths
at SkySong and the larger university involve sustainability
and renewable energy, advanced materials, flexible systems,
biodesign and health, security and defense systems, earth and
space exploration, and learning sciences.
The University of
The University of Arizona (UA) spent even
more on R&D efforts than ASU. In 2013, UA had about
$629 million in R&D expenditures. That investment
ranked them 32nd in the nation for R&D expenses among
universities, ahead of other research oriented universities.
The college recently
formed a partnership with Uber Inc. to improve optics used in
mapping technology which is so central to the self-driving car
effort. The partnership which includes a $25,000
donation to the university’s College of Optical Sciences
center is attracting the attention of local politicians as
well. Governor Doug Ducey recently signed an
executive order directing state agencies to take necessary
steps to support the testing and operation of self-driving
vehicles on public roads within Arizona. Governor Ducey said
that “the administration of Arizona is ardently focused on
helping 21st-century companies like Uber grow their
footprint”. Uber has similar partnerships with Carnegie
Mellon which have so far resulted in autonomous vehicles
roaming the streets of Pittsburgh.
The Arizona economy is shifting its focus
towards one centered on technology and innovation. Both
large and small companies throughout the state are developing
technologies that will make the local economy more competitive
on both a national and global scale. Federal and state
Research and Development Tax Credits are available to
stimulate and support these innovation efforts.