Arizona prides itself on being a business-first state, with the lowest flat tax rate in the country and the sixth lowest corporate income tax rate. The state also has a range of tax incentive programs businesses can qualify for.
Keep reading to see all of them below.
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Arizona tax incentives for businesses
Health Insurance Premium Tax Credit
The Health Insurance Premium Tax Credit is a credit for health insurance companies that enroll qualified small businesses whose employees weren’t previously covered by health insurance. The credit effectively reduces the small business’s premiums.
The credit amount is $1,000 per year for single coverage and $3,000 per year for family coverage, or 50% of the annual premium, whichever amount is less. To qualify, a small business has to meet the below requirements:
- Have been in existence in Arizona for at least one year
- Not have provided health insurance to employees for at least six consecutive months prior to submitting an application
- Had between two and 25 employees (either full-time or part-time) during the most recent calendar year
If you qualify, you’ll receive a Certificate of Eligibility, after which you have 90 days to obtain coverage with a participating health insurance provider.
Learn more about the credit and download an application.
Healthy Forest Production Tax Credit
The Healthy Forest Production Tax Credit rewards businesses that process qualifying forest products within Arizona. Companies that process these products as part of qualifying projects that occur between December 31, 2020 and January 1, 2031 can receive a credit against their corporate income tax.
The credit is $10,000 for the first 20,000 tons processed and $5,000 for every 10,000 tons processed after, with a maximum of $500,000 per taxpayer.
To be eligible for the credit, your business has to obtain a Healthy Forest Enterprise Incentive Certification and Memorandum of Understanding with the Arizona Commerce Authority. You can apply for the credit between January 2 and January 31 of the year following the calendar year you’re requesting the credit for.
Learn more about the program guidelines.
Renewable Energy Production Tax Credit
The Renewable Energy Production Tax Credit is a corporate income tax credit available to companies that create electricity from an alternative energy source using a qualified energy generator—then sell that energy to an unrelated entity or public service corporation.
The Arizona Department of Revenue (ADOR) defines a qualified energy generator as a facility located within Arizona that has at least five megawatts (or 5,000 kW) generating capacity. To qualify for the credit, a business needs to:
- Own a qualified energy generator that generated electricity after December 1, 2010 and before January 1, 2021
- Apply between January 2 and January 31 of the following calendar year of production
Read more about the program guidelines here.
Renewable Energy Investment and Production for Self-Consumption
Arizona also offers an individual or corporate income tax credit to taxpayers who invest in new renewable energy facilities that produce energy for self-consumption.
To qualify for the credit, a business needs to have invested at least $100 million in one or more new renewable energy facilities in Arizona that generate energy for self-consumption using renewable resources, by December 31, 2018. At least 51% of the energy produced must be used for self-consumption for an international operations center in Arizona.
Check out the complete program guidelines here.
Research and Development Tax Incentive
Arizona’s Research and Development (R&D) Tax Incentive gives Arizona businesses an income tax credit for investing in R&D activities. The credit is equal to 24% of the first $2.5 million in qualifying expenses, plus 15% of the qualifying expenses in excess of $2.5 million.
Learn more about the credit and how to apply.
Here’s everything you need to know about the federal R&D credit.
University Research and Development Tax Credit
The University Research and Development Tax Credit gives taxpayers an individual or corporate income tax credit for making research payments to certain Arizona universities. A business can only qualify for the University R&D tax credit if they’ve already qualified for the Arizona Research and Development Tax Credit.
The credit is equal to 10% of the excess of the “basic research payments” over the taxpayers “qualified organization base period amount” for the taxable year.
Find out how to apply and obtain certificates of approval here.
Credits for Contributions to Certified School Tuition Organizations
Arizona businesses that donate to Certified School Tuition Organizations in the state can receive a corporate income tax credit. There are two available credits:
- The Low-Income Corporate Tax Credit is for donating to Certified School Tuition Organizations that give scholarships to students from low-income backgrounds or areas.
- The Disabled/Displaced Corporate Tax Credit is for donating to Certified School Tuition Organizations that give scholarships to displaced students or students with disabilities.
To qualify for the credit, you have to apply for a pre-approval certificate with ADOR. Learn more about how to apply here.
Quality Jobs Tax Credit
Arizona’s Quality Jobs Tax Credit rewards employers for creating new jobs and investing in the state economy. The credit offers businesses up to $9,000 of Arizona income or premium tax credits over a three-year period for each net new qualifying job ($3,000 per year).
To qualify, your business needs to:
- Invest at least $100,000 if you’re located in a rural area, and a least $500,000 if you’re located in an urban area.
- Add at least five net new jobs if you’re located in a rural area, and at least 25 net new jobs if you’re located in an urban area.
- Pay between 150% to 200% of the county median wage where you’re located.
Find more information on how to apply here.
Qualified Facility Tax Credit
Under the Qualified Facility Tax Credit, certain companies can get a credit to offset the cost of expanding their business facilities within Arizona or relocating their headquarters to Arizona. The income tax credit is equal to the lesser of:
- 10% of the qualifying capital investment,
- $20,000 per net new job at the facility if the total qualifying investment is less than $2 billion or $30,000 per net new full-time employment position associated with the facility if the total qualifying investment is more than $2 billion, or
- $30 million per taxpayer per year
To qualify for the tax credit, you need to meet the below criteria:
- Invest at least $250,000 to establish or expand a Qualified Facility that devotes at least 80% of the property and payroll to qualified manufacturing, manufacturing-related research and development, or headquarters functions.
- Create net new full-time employment positions for the project, at least 51% of which are paid at least 125% of the state’s annual median production wage if located in an urban area or 100% of the state’s annual median production wage if located in a rural area.
- Generate at least 65% of the project’s sales/revenues from outside of Arizona.
- Offer to pay at least 65% of the health insurance premiums for all net new full-time employment positions.
Gather more details on the tax credit requirements and application process here.
Angel Investment Tax Credit Program
The Angel Investment Tax Credit Program rewards investors for making early-stage investments in Arizona small businesses. Qualified small businesses must be organized as an official business entity, maintain operations in Arizona, have at least two non-administrative full-time employees who live in Arizona, and does not have assets exceeding $10 million.
You can learn more about how to invest here.
Arizona solar tax credits
Arizona doesn’t offer any state tax credits to businesses that use solar energy, but the state does offer a one-time nonrefundable income tax credit to individuals who installed solar devices on their residential properties. The credit amount is equal to 25% of the cost of buying and installing a solar device, up to $1,000.
In addition to the Renewable Energy Production Tax Credit, Arizona businesses can also apply for the federal solar energy credit, called the Energy-Efficient Commercial Buildings Deduction.
Plus, some Arizona utility and electric companies offer rebates for installing solar or other renewable energy devices. Check your business’s utility company’s website to find out if they have an incentive program for you.
Motion Picture Production Program Incentive
The Motion Picture Production Program (MPPP) offers an Arizona film tax incentive to qualifying production companies. Companies that set at least 50% of their movie, TV, commercial, and music video projects in Arizona are eligible for a credit to offset the production costs incurred in the state.
The credit amount varies depending on how much the production company spends on qualified production costs:
- 15% of qualified production costs, up to $10 million
- 17.5% of qualified production costs, between $10-35 million
- 20% of qualified production costs, over $35 million
Eligible production companies can also get additional credit bumps of 2.5% each for hiring local Arizona labor and using qualified production facilities in Arizona.
For more information on the program guidelines—including how to apply—check here.
Arizona sales and use tax exemptions
Arizona has a variety of different sales and use tax exemptions that businesses can qualify for. Here are some worth noting:
- If your business is part of the Military Reuse Zone program, you can qualify for property reclassification and Transaction Privilege Tax (TPT) exemptions. Learn more.
- The Computer Data Center (CDC) program gives qualifying businesses TPT and use tax exemptions on qualifying purchases of CDC equipment. Learn more.
- Arizona’s Additional Depreciation values qualifying business personal property—from computers to equipment—classified in 2022 or later at 2.5%, which lowers a business’s tax liability significantly. Learn more.
- Under the Healthy Forest Enterprise incentive program, certified businesses engaged in creating forestry-related products can take advantage of a handful of tax exemptions, including a use fuel tax reduction, a TPT exemption on equipment, a use tax exemption, and a property tax reduction. Learn more.
- For businesses that want to develop certain qualifying properties, the Government Property Lease Excise Tax (GPLET) reduces a project’s operating costs by replacing the real property tax with an excise tax. Learn more.
- Manufacturing businesses in Arizona benefit from several different sales tax exemptions. Learn more.
Arizona city and county tax credits
Plenty of Arizona cities have their own local tax incentive programs for businesses. Start here to find your city’s website and browse around.
Financing resources for small businesses in Arizona
If you need more financial support than tax incentives can provide, it might be time to consider financing. In addition to federal loan and grant programs, Arizona has a variety of state-specific loans and grants available to businesses like yours. Explore Gusto’s guide to small business financing in Arizona for a full list.
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