Arizona Qualified Facility Tax Credit: How manufacturers can maximize savings

By Tyler Petzel, CPA

If your manufacturing business is based or has a facility in Arizona, the Arizona Qualified Facility Tax Credit could provide you with a powerful tax savings.

The credit is a program administered by the Arizona Commerce Authority (ACA) designed to incentivize businesses to expand their services, products, and facilities. To qualify, a business needs to have made a substantial capital investment and created a significant number of quality jobs.

The credit is not industry-specific; however, manufacturers are a natural fit. To ensure you’re making the most of these Arizona business tax incentives, here’s what you should know about it.

How can you qualify for the Arizona Qualified Facility Tax Credit?

Businesses in cities such as Phoenix, Tucson, and Mesa have leveraged the Arizona Qualified Facility Tax Credit to expand their operations and employment opportunities. For your business to qualify for this investment tax credit, you must meet the following criteria:

• Have made a minimum capital investment in new or expanded facilities. This investment can include expenditures for land, buildings, and equipment.
• Have created a certain number of net new full-time jobs that meet wage requirements set by the ACA. These jobs must be maintained for a specified time period.

What kind of tax savings can you expect?

The Arizona Qualified Facility Tax Credit is a refundable income tax credit that is based on your capital investment and job creation—10% of qualified investments or $20,000 per qualified job added, whichever is the lesser amount.

There is a 3-year lookback period to determine the total qualified investments and jobs created. The total qualified credits are refundable credits and paid out over 5 years. By reducing your tax liability and increasing your cash flow year to year, the credit can give your business a competitive edge.

How the Arizona Qualified Facility Tax Credit provides Arizona business tax incentives for manufacturers

For example, we recently had a client who started up in 2020. Over the next four years, due to purchasing and renting equipment and facilities, they had invested approximately $15,000,000 into their business and added more than 110 jobs. This client qualified for the credit and is getting approximately $1 million paid out over 5 years.

How do you know if your business qualifies for this investment tax credit?

Determining if your business qualifies for the Arizona Qualified Facility Tax Credit starts with submitting a pre-approval application. This involves compiling your depreciation schedules, purchase agreements, reports showing wages, etc.

Once you submit your pre-approval application, the state will review and, if you qualify, will grant you a letter that will include a pre-approval date. You’ll be able to apply the credit to the 3 years (i.e., 36 months) leading up to this date (this is the 3-year look back I mentioned earlier).

Next, you’ll put together a post-approval application and supporting documents. We will help you work with a qualified third party pre-approved by the ACA to review the post-approval application. Once this is approved by the state, you can claim the credit on your tax return.

Take advantage of Arizona business tax incentives.

For companies in Arizona’s major business hubs, including Scottsdale, Tempe, and Chandler, the Arizona Qualified Facility Tax Credit can provide a significant financial advantage.

If you think your business could qualify for this credit and you wish to apply it to your 2024 tax return, it’s important to act quickly, as the application process can take several months.

Either way, learning more about this valuable investment tax credit—and evaluating your business’ eligibility—can help you make more informed decisions in the year ahead.

Want to see if your business qualifies? Download our free eligibility checklist or schedule a consultation today.