Challenge: Investment in university-level research is essential for states to promote innovation ecosystems, remain economically competitive, and spur job creation.
Solution: States can stimulate investment in university research by creating a university research and development (R&D) tax credit. 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 credits refundable and transferable, so businesses with low tax liability are also incentivized to invest in state R&D.
Example: 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.