Encouraging investments in university-level research is essential for states to promote innovation ecosystems, remain economically competitive, and spur job creation. One way states can stimulate investment in university research is by creating a university R&D tax credit. Arizona’s  tax credit incentivizes businesses to invest in local R&D activities through a nonrefundable income tax credit. From 2011 to 2017, the R&D tax credit is equivalent to 24 percent of the first $2.5 million of investments plus 15 percent of additional investments over $2.5 million. After 2018, the tax credit rates will drop to 20 percent and 11 percent, respectively. By creating a significant incentive for businesses to invest in local university research, a state could increase its innovation ecosystem’s competitiveness. States should consider making their R&D tax credit refundable and transferable, so businesses with low tax liability are also incentivized to invest in state R&D.