State research credits and state fee rules

1Summary

The federal research credit under Section 41 is not the only research credit a business may claim. Several states offer their own, and several define them by reference to the federal rules. This paper describes the research credits of four states: Arizona, California, New Jersey and Texas. All four draw on Section 41 definitions and limit the credit to research conducted in the state.1234 New Jersey and Texas tie their credits to the figures on federal Form 6765, including amended and audited figures.34

The paper then describes what selected state boards of accountancy say about contingent fees. The California and New Jersey boards bar their licensees from preparing amended returns or refund claims for a contingent fee for any client.56 The Texas board ties its tax return bar to clients for whom the person performs work requiring independence.7 Treasury has described the rules of other state boards in similar terms.8

These board rules apply to the people the boards license. The IRS states that paid preparers who have no professional credential are authorized to prepare federal returns.9 None of the state research credit instructions reviewed for this paper asks who prepared a claim or how the preparer was paid.

This paper is factual. The Research Credit Integrity Alliance takes no position on state programs, and nothing in this paper recommends any change to any state's law or rules.

2Scope and method

The paper covers four states chosen because their credit rules and fee rules could be read in official sources on the access date: state statutes, state tax agency instructions and bulletins, and the published rules of state boards of accountancy. It does not survey every state. Where a board rule was read from a reproduction rather than an official publication, the note says so. The paper reports what the rules say. It does not apply them to any particular arrangement.

3State research credits and Section 41

3.1Arizona

Arizona allows a credit against its income taxes "in an amount determined pursuant to section 41 of the internal revenue code", with its own rates.1 For taxable years beginning before December 31, 2030, the credit is 24 percent of the excess of qualified research expenses over the base amount where that excess is $2,500,000 or less, and $600,000 plus 15 percent of any amount above $2,500,000 where it is larger.1 For later years the rates fall to 20 percent, and to $500,000 plus 11 percent.1 Qualified research includes only research conducted in Arizona, including research at a university in the state paid for by the taxpayer, and the termination provisions of Section 41 do not apply.1 An additional credit is allowed for certain basic research payments to universities under the Arizona Board of Regents.1 Unused credit for taxable years beginning after 2021 may be carried forward for ten years.1

3.2California

California's Franchise Tax Board instructions for 2025 state that the regular credit is 15 percent of the excess of qualified research expenses over the base period research expenses, and that corporations are also allowed a credit of 24 percent of basic research payments.2 For taxable years beginning on or after January 1, 2025, a taxpayer may instead elect an alternative simplified credit of 3 percent of qualified research expenses above 50 percent of the average for the three preceding years, or 1.3 percent of current expenses where there were none in any of those years. The alternative incremental credit has been repealed.2

California conforms to the federal definition of qualified research expenses under Section 41(b), and the research must be conducted within California.2 The research credit is not refundable.2 For taxable years beginning in 2024 to 2026, business credits may not reduce tax by more than $5,000,000, and a taxpayer may elect to receive credits disallowed by that limit as a refundable amount over five years.2 California did not conform to the federal requirement to amortize research expenditures for taxable years beginning on or after January 1, 2022.2

3.3New Jersey

New Jersey's corporation business tax credit under N.J.S.A. 54:10A-5.24 is 10 percent of the excess of qualified research expenses over the base amount, and 10 percent of basic research payments, determined under Section 41, counting only research conducted in New Jersey.3 The Division of Taxation states that federal rules and case law on Sections 174, 174A and 41 apply except where New Jersey law differs.3 For privilege periods beginning on or after January 1, 2018, the credit is not refundable, and unused credit may be carried over to the seven following privilege periods.3

New Jersey ties its credit closely to the federal return. The taxpayer must use the same method it used for the federal credit and enclose the federal Form 6765.3 If a taxpayer amends its federal return to change the method or the amount of research credit, it must file an amended New Jersey return; if the IRS adjusts qualifying expenses, the taxpayer must reflect the adjustment on an amended New Jersey return.3 The Division states: "If taxpayers amend their federal returns pursuant to IRS Rev. Proc. 2025-28, taxpayers must amend their New Jersey CBT returns."3 It also states that a four-year statute of limitations applies to refunds and assessments.3

3.4Texas

Texas replaced its franchise tax research credit in 2025. Senate Bill 2206 repealed the credit in Subchapter M of Chapter 171 of the Tax Code and the sales tax exemption for certain research property, and added a new credit in Subchapter T, effective January 1, 2026.410 The Comptroller states that the new credit applies to franchise tax reports originally due on or after January 1, 2026.10

Under the new credit, qualified research expense means the portion of the amount a taxable entity reports as total qualified research expenses on line 48 of federal Form 6765 that is attributable to research conducted in Texas.4 The credit is generally 8.722 percent of the difference between current qualified research expenses and 50 percent of the average for the three preceding periods, and 10.903 percent where the entity incurs qualified research expenses under a contract with a public or private institution of higher education.4 An entity that owes no franchise tax for the period may receive the credit as a refundable amount.4

The statute follows the federal figure through amendment and audit. A reference to an amount on Form 6765 is to the amount that complies with federal law; if an amended Form 6765 is filed with the IRS within the federal refund period, to the amount on the amended form; and if the IRS has audited the return and the audit is final, to the amount "as audited or adjusted by the Internal Revenue Service".4

State	Credit rate on qualifying excess	Link to Section 41 or Form 6765	Research location	Refundable
Arizona	24 percent up to $2.5 million of excess, then $600,000 plus 15 percent (before December 31, 2030)	Amount determined under Section 41 with Arizona rates	Arizona only	Not addressed in the subsections reviewed
California	15 percent regular; 3 percent alternative simplified (from 2025)	Section 41(b) definition of qualified research expenses	California only	No, apart from the election for credits limited in 2024 to 2026
New Jersey	10 percent	Section 41; same method as federal; amended federal return requires amended state return	New Jersey only	No, for periods from 2018
Texas	8.722 percent, or 10.903 percent with a higher education contract	Line 48 of Form 6765, as amended or audited	Texas only	Yes, for entities that owe no tax

Figure 1. Research credits in four states, as stated in the sources cited in this section.1234 The table simplifies; see the text and sources for detail.

3.5What the federal link means

Where a state credit is built on Section 41 definitions, the judgments made for the federal claim, about business components, experimentation and the allocation of costs, also shape the state claim.123 Where a state uses the Form 6765 figure, as Texas does, or requires an amended state return after a federal amendment or adjustment, as New Jersey does, a change to the federal claim carries into the state claim.34 A single preparer's work can therefore determine both.

4What state boards of accountancy say about contingent fees

4.1The AICPA Code

State boards of accountancy license certified public accountants. The AICPA Code of Professional Conduct, which binds AICPA members, is the national professional code. It bars members from charging a contingent fee to a client for whom they perform audits, reviews and certain other attest services, and from preparing "an original or amended tax return or claim for a tax refund for a contingent fee for any client".11 It excludes fees determined by the findings of governmental agencies, but only where the member can show a reasonable expectation that an agency will give the matter substantive consideration, and that expectation is not reasonable where the member prepares the client's original returns.11

In December 2024 Treasury and the IRS stated that "Many state accountancy board rules also prohibit contingent fee arrangements for preparing an original or amended return or claim for refund or credit", citing rules in New Jersey, Tennessee and California, and comparing the code of conduct of the New York State Society of Certified Public Accountants.8 Treasury described the Tennessee provision, Tenn. Code Ann. section 62-1-123(b)(1)(B), as prohibiting contingent fees for preparation of an original return.8

4.2California

The California Board of Accountancy's rule provides that a licensee shall not perform services for a contingent fee for a client for whom the licensee or the licensee's firm performs an audit or review, certain compilations, an examination of prospective financial information, other attest engagements whose reports a third party is expected to use, or "Any other services requiring independence".5 It also provides that a licensee shall not "Prepare an original tax return for a contingent fee for any client", nor "Prepare an amended tax return, claim for tax refund, or perform other similar tax services for a contingent fee for any client".5 A licensee may not act as a testifying expert for a contingent fee.5

Fees are not regarded as contingent if fixed by courts or governmental entities acting in a judicial or regulatory capacity, or, in tax matters, if determined by the results of judicial proceedings or the findings of governmental agencies in a judicial or regulatory capacity, "or there is a reasonable expectation of substantive review by a taxing authority".5

4.3New Jersey

The New Jersey State Board of Accountancy's rule defines a contingent fee in the same terms as the AICPA Code and excludes fees fixed by a court or other public authority, and, in tax matters, fees determined by the results of a judicial proceeding or the findings of a governmental agency.6 It bars a licensee in public practice from receiving a contingent fee from a client for whom the licensee's firm performs an audit or review, a compilation accompanied by a report, or an examination of prospective financial information.6 It also provides that "A licensee in public practice shall not receive a contingent fee for preparing an original or amended tax return or claim for a tax refund for any client."6

4.4Texas

The Texas State Board of Public Accountancy's rule is framed around independence. A person shall not perform services for a contingent fee for, or receive such a fee from, a client for whom the person performs work requiring independence.7 A person also shall not prepare an original or amended federal, state, local or other tax return "for a contingent fee for any client during the period in which the person is engaged to perform" that work, and the period covered by the financial statements involved.7 Fees are not contingent if fixed by courts or governmental entities acting in a judicial or regulatory capacity, if determined in tax matters by judicial proceedings or agency findings in such a capacity, "or if there is a reasonable expectation of substantive review by a taxing authority".7

The Texas rule, as reproduced, does not contain a general bar on contingent fees for preparing tax returns for clients who receive no services requiring independence.7

Board	Contingent fee for attest or independence clients	Contingent fee for an amended return or refund claim for other clients	Review exception
California	Barred	Barred	Includes a reasonable expectation of substantive review by a taxing authority
New Jersey	Barred for audit, review, reported compilation and prospective information clients	Barred	Findings of a governmental agency in tax matters
Texas	Barred	Barred only during an engagement requiring independence	Includes a reasonable expectation of substantive review by a taxing authority
AICPA Code (for comparison)	Barred	Barred, unless substantive consideration by an agency is reasonably expected	Not reasonable where the member prepares the original return

Figure 2. Contingent fee rules of selected state boards of accountancy, with the AICPA Code for comparison.56711 The table simplifies; see the rules for their exact terms.

4.5Whom the board rules reach

Each rule is addressed to the people the board regulates: a "licensee" in California, a "licensee in public practice" in New Jersey, and a "person" subject to the Texas board's rules.567 A board rule does not, by its terms, reach someone the board does not license. The IRS states that tax return preparers who have an active preparer tax identification number but no professional credentials "are authorized to prepare tax returns".9 Whether a fee rule applies to a research credit claim therefore depends on who prepares it, in each state as at the federal level.

4.6Review exceptions

The exceptions for review by a taxing authority differ in wording. The California and Texas rules exclude fees where there is "a reasonable expectation of substantive review by a taxing authority".57 The New Jersey rule refers to fees determined by "the findings of a governmental agency".6 The AICPA Code requires a reasonable expectation of substantive consideration and states that it is not reasonable where the member prepares the original return.11 This paper does not express a view on how any of these exceptions applies to a research credit claim. That is a question for each board.

4.7The reasons given for the rules

The board rules reviewed do not state their own reasons. The bodies whose rules they resemble have stated theirs.

The parts of the board rules tied to independence correspond to the rules for auditors. The Public Company Accounting Oversight Board, adopting its own contingent fee rule for auditors of public companies in 2005, said that "when an accounting firm provides a service to an audit client for a contingent fee, the firm's economic interests become aligned with the interests of its audit client in a manner that is inconsistent with the firm's role as independent auditor".12

The parts that reach tax returns for any client correspond to a different provision of the AICPA Code. The AICPA Code describes a self-interest threat as the threat that a member could benefit from an interest in, or relationship with, a client, and gives as an example "A firm enters into a contingent fee arrangement for a tax refund claim that is not a predetermined fee."11 Treasury, describing the AICPA rule in 2024, said it prohibits contingent fees for preparing original returns, amended returns and ordinary refund claims "because of the risk that these contingent fee arrangements would allow a CPA to benefit improperly from an interest in, or relationship with, a client".8

The review exceptions turn on whether a taxing authority will consider the matter. The AICPA Code's examples of permitted contingent fees include representing a client in an examination and filing an amended return claiming a refund above the threshold for review by the Joint Committee on Taxation.11 The boards reviewed have each drawn that line in their own words.567

4.8Timing differences between state and federal claims

The federal period for a refund claim is generally three years from filing or two years from payment, whichever is later.13 New Jersey states that a four-year statute of limitations applies to refunds and assessments for its corporation business tax, and that unused credit carryovers cannot be claimed in later years if Form 306 was never filed with a timely original or amended return.3 Texas uses an amended Form 6765 figure only if the amended form is filed with the IRS within the federal refund period.4 A taxpayer amending a federal research credit claim may therefore face different deadlines for the related state claims.

5The federal rules beside the state rules

State board rules sit alongside federal rules on the same subject. Circular 230 provides that a practitioner may not charge a contingent fee for services in connection with a matter before the IRS, including preparing returns and refund claims.14 In 2014 a federal district court held that the IRS lacks statutory authority to regulate the preparation and filing of refund claims filed after the original return but before an audit, and enjoined enforcement of the rule to that extent.15 Treasury's 2024 proposal to treat such fees as disreputable conduct relied in part on the state board rules described above, and has not been finalized.8

That decision concerned Treasury's statutory authority over practice before it.15 The state board rules rest on each state's own law.567

6What state forms ask

The state sources reviewed for this paper ask about the credit, the method and the research location. California's instructions ask for the computation of qualified research expenses and the base amount.2 New Jersey requires Form 306 and a copy of the federal Form 6765.3 Texas uses the federal Form 6765 figure.4 None of these sources asks who prepared the claim or how the preparer was paid.

The federal Form 6765 does not ask either.16 A state that relies on the federal figure therefore receives no information about fees from the federal form.

7What the record shows

The record reviewed for this paper shows the following.

The four state credits reviewed draw on Section 41, limit the credit to research in the state, and differ in rate, refundability and structure.1234
New Jersey and Texas tie their credits to the federal claim, including amended and audited figures, so a change to the federal claim carries into the state claim.34
The California and New Jersey boards bar licensees from preparing amended returns or refund claims for a contingent fee for any client, while the Texas board's tax return bar is tied to independence engagements.567
The board rules reach licensees. Preparers without credentials are authorized to prepare federal returns and are outside them.9
The board rules contain exceptions for review by taxing authorities, worded differently in each.567

The record does not show how many state research credit claims are prepared by advisers, how those advisers are paid, or whether claims prepared under different fee arrangements fare differently on review. No state source reviewed for this paper collects or publishes that information.

References

Arizona Legislature, Arizona Revised Statutes 43-1074.01, Credit for increased research activities, subsections A and B, and 43-1168, Credit for increased research activity, subsections A and B. https://www.azleg.gov/ars/43/01074-01.htm and https://www.azleg.gov/ars/43/01168.htm (accessed 11 October 2026). Back
California Franchise Tax Board, 2025 Instructions for Form FTB 3523, Research Credit, "What's New", "Important Information", General Information sections B and C. https://www.ftb.ca.gov/forms/2025/2025-3523-instructions.html (accessed 11 October 2026). Back
New Jersey Division of Taxation, The New Jersey Research and Development Tax Credit, Technical Bulletin TB-114(R) (revised 25 November 2025), pages 1 to 3 and the section "Statute of Limitations for Claiming the New Jersey R&D Credit". https://www.nj.gov/treasury/taxation/pdf/pubs/tb/tb114.pdf (accessed 11 October 2026). Back
Texas Legislature, S.B. 2206, 89th Legislature, Regular Session, enrolled version, section 1 (adding Tax Code sections 171.9202, 171.9204 and 171.9205), sections 3 and 6. https://capitol.texas.gov/tlodocs/89R/billtext/html/SB02206F.htm (accessed 11 October 2026). Back
California Board of Accountancy, California Board of Accountancy Regulations (California Code of Regulations, Title 16, Division 1, current as of 1 July 2026), section 62, Contingent Fees. https://www.dca.ca.gov/cba/about/cba_regs.pdf (accessed 11 October 2026). Back
New Jersey State Board of Accountancy, N.J.A.C. 13:29-3.8, Contingent fees, subsections (a) to (e), as reproduced by the Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/regulations/new-jersey/N-J-A-C-13-29-3-8 (accessed 11 October 2026). Back
Texas State Board of Public Accountancy, 22 Texas Administrative Code 501.72, Contingency Fees, subsections (a), (b) and (d), as reproduced by the Legal Information Institute, Cornell Law School. https://www.law.cornell.edu/regulations/texas/22-Tex-Admin-Code-SS-501-72 (accessed 11 October 2026). Back
Treasury Department and Internal Revenue Service, Regulations Governing Practice Before the Internal Revenue Service, notice of proposed rulemaking, REG-116610-20, 89 FR 104915 (26 December 2024), Explanation of Provisions part B. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026; a Federal Register search on that date for documents with this title published from 1 December 2024 returned only this proposed rule). Back
Internal Revenue Service, Understanding tax return preparer credentials and qualifications (page last reviewed or updated 29 January 2026). https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications (accessed 11 October 2026). Back
Texas Comptroller of Public Accounts, 2025 Legislative Update, "Franchise Tax Credit for Research and Development Expenses" and "Repeal of Sales Tax Exemption for Certain Property Used in Research and Development". https://comptroller.texas.gov/taxes/tax-policy-news/2025-august.php (accessed 11 October 2026). Back
American Institute of CPAs, AICPA Code of Professional Conduct (updated for all official releases through September 2026), ET 1.000.010 paragraph .14, ET 1.510.001 Contingent Fees Rule paragraphs .01 and .03, and ET 1.510.010 Tax Matters paragraphs .03 and .04. https://pub.aicpa.org/codeofconduct/ethicsresources/et-cod.pdf (accessed 11 October 2026). Back
Public Company Accounting Oversight Board, Ethics and Independence Rules Concerning Independence, Tax Services, and Contingent Fees, PCAOB Release No. 2005-014 (26 July 2005), page 18. https://pcaobus.org/Rulemaking/Docket017/2005-07-26_Release_2005-014.pdf (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6511, Limitations on credit or refund, subsection (a), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap66-subchapB-sec6511.htm (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.27, Fees, paragraphs (b) and (c). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-B/section-10.27 (accessed 11 October 2026). Back
US District Court for the District of Columbia, Ridgely v. Lew, Civil Action No. 1:12-cv-00565 (CRC), Memorandum Opinion, 16 July 2014, pages 1 and 14 to 15. https://www.govinfo.gov/content/pkg/USCOURTS-dcd-1_12-cv-00565/pdf/USCOURTS-dcd-1_12-cv-00565-1.pdf (accessed 11 October 2026). Back
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), Sections A to G (page last reviewed or updated 30 April 2026). https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back

Cite this paper

Summary

1Summary

2Scope and method

3State research credits and Section 41

3.1Arizona

3.2California

3.3New Jersey

3.4Texas

3.5What the federal link means

4What state boards of accountancy say about contingent fees

4.1The AICPA Code

4.2California

4.3New Jersey

4.4Texas

4.5Whom the board rules reach

4.6Review exceptions

4.7The reasons given for the rules

4.8Timing differences between state and federal claims

5The federal rules beside the state rules

6What state forms ask

7What the record shows

References

About this paper

Cite this paper

Summary

1Summary

2Scope and method

3State research credits and Section 41

3.1Arizona

3.2California

3.3New Jersey

3.4Texas

3.5What the federal link means

4What state boards of accountancy say about contingent fees

4.1The AICPA Code

4.2California

4.3New Jersey

4.4Texas

4.5Whom the board rules reach

4.6Review exceptions

4.7The reasons given for the rules

4.8Timing differences between state and federal claims

5The federal rules beside the state rules

6What state forms ask

7What the record shows

References

About this paper

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