Relating to a franchise tax credit for, and the application of sales and use taxes to, certain research and development expenses.

89(R) SB 2206 - Enrolled version - Bill Text

S.B. No. 2206

AN ACT

relating to a franchise tax credit for, and the application of sales

and use taxes to, certain research and development expenses.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 171, Tax Code, is amended by adding

Subchapter T to read as follows:

SUBCHAPTER T.

TAX CREDIT FOR CERTAIN RESEARCH AND DEVELOPMENT

ACTIVITIES

Sec.

171.9201.

DEFINITION. In this subchapter, "public or

private institution of higher education"

means:

(1)

an institution of higher education, as defined by

Section 61.003, Education Code; or

(2)

a private or independent institution of higher

education, as defined by Section 61.003, Education Code.

Sec.

171.9202.

QUALIFIED RESEARCH EXPENSE.

(a)

In this

subchapter, "qualified research expense" means, subject to this

section, the portion of the amount reported by a taxable entity as

the entity's total qualified research expenses on line 48 of Form

6765, that is attributable to research conducted in this state.

The

term does not include any amount that is not paid or incurred by the

taxable entity, a member of the entity's combined group, or a lower

tier entity as provided by Section 171.9206.

(b) For purposes of this section:

(1)

a reference to Form 6765 is a reference to Internal

Revenue Service Form 6765 and includes a revised version of that

form or a subsequent form with a different number or designation

that substantially provides the same information as Form 6765; and

(2)

a reference to a line number on Form 6765 includes

a different line number on a revised or subsequent form described by

Subdivision (1) that substantially provides the same information as

the line number originally referenced.

(c)

Notwithstanding Section 171.0001(9), for purposes of

this section, a reference to an amount reported on a line number on

Form 6765 is:

(1)

a reference to the amount entered on that line

number to the extent the amount entered complies with federal law in

effect for the federal tax year for which the form is filed with the

Internal Revenue Service;

(2)

if an amended Form 6765 is filed by the taxable

entity with the Internal Revenue Service before the expiration of

the period for claiming a refund of federal income tax for the

federal tax year for which the amended form is filed, a reference to

the amount entered on that line number on the amended form; or

(3)

if the Internal Revenue Service has audited the

federal income tax return of a taxable entity for a federal tax year

for which the taxable entity filed Form 6765 with the Internal

Revenue Service and the audit has been made final, a reference to

the amount reported on that line number on the form as audited or

adjusted by the Internal Revenue Service.

(d)

For purposes of determining the amount on line 48 of

Form 6765 under this section:

(1)

a taxable entity or the comptroller may use

statistical sampling procedures if the procedures are permitted by

the Internal Revenue Service's Revenue Procedure 2011-42 or a

successor publication issued by the service; and

(2)

expenses for supplies properly reportable by a

taxable entity as qualified research expenses on either of those

lines may not be excluded from the computation of those expenses for

purposes of this subchapter on the basis that the supplies are

taxable, nontaxable, or exempted from taxation under Chapter 151.

(e)

Notwithstanding any other provision of this subchapter,

if the Internal Revenue Service or the comptroller determines that

a taxable entity has satisfied the requirements of the Internal

Revenue Service to accept as sufficient evidence of the entity's

qualified research expenses the entity's adjusted Accounting

Standards Codification 730 financial statement research and

development costs for a federal tax credit year, then the portion of

those adjusted costs that is related to research conducted in this

state is sufficient evidence of the entity's qualified research

expenses for that federal tax credit year for purposes of this

subchapter.

Sec.

171.9203.

ELIGIBILITY FOR CREDIT. A taxable entity is

eligible for a credit against the tax imposed under this chapter in

the amount and under the conditions provided by this subchapter.

Sec.

171.9204.

AMOUNT OF CREDIT. (a) Except as provided by

Subsections (b), (c), and (d), the credit for any report equals

8.722 percent of the difference between:

(1)

the qualified research expenses incurred during

the period on which the report is based; and

(2)

50 percent of the average amount of qualified

research expenses incurred during the three tax periods preceding

the period on which the report is based.

(b)

If the taxable entity contracts with one or more public

or private institutions of higher education and the entity incurs

qualified research expenses under the contract during the period on

which the report is based, the credit for the report equals 10.903

percent of the difference between:

(1)

all qualified research expenses incurred during

the period on which the report is based; and

(2)

50 percent of the average amount of all qualified

research expenses incurred during the three tax periods preceding

the period on which the report is based.

(c)

Except as provided by Subsection (d), if the taxable

entity has no qualified research expenses in one or more of the

three tax periods preceding the period on which the report is based,

the credit for the period on which the report is based equals 4.361

percent of the qualified research expenses incurred during that

period.

(d)

If the taxable entity contracts with one or more public

or private institutions of higher education and the entity incurs

qualified research expenses under the contract during the period on

which the report is based, but has no qualified research expenses in

one or more of the three tax periods preceding the period on which

the report is based, the credit for the period on which the report

is based equals 5.451 percent of all qualified research expenses

incurred during that period.

(e)

Notwithstanding whether the time for claiming a credit

under this subchapter has expired for any tax period used in

determining the average amount of qualified research expenses under

Subsection (a)(2) or (b)(2), the determination of which research

expenses are qualified research expenses for purposes of computing

that average must be made in the same manner as that determination

is made for purposes of Subsection (a)(1) or (b)(1). This

subsection does not apply to a credit to which a taxable entity was

entitled under Subchapter O, as that subchapter existed before

January 1, 2008.

(f)

The comptroller may adopt rules for determining which

research expenses are qualified research expenses for purposes of

Subsection (a) or (b) to prevent disparities in those

determinations that may result from the taxable entity using

different accounting methods for the period on which the report is

based, as compared to any preceding tax periods used in determining

the average amount of qualified research expenses under Subsection

(a)(2) or (b)(2).

Sec.

171.9205.

CREDIT FOR CERTAIN TAXABLE ENTITIES THAT OWE

NO TAX. (a)

A taxable entity that incurs qualified research

expenses during a period for which the entity is not required to pay

the tax imposed by this chapter under Section 171.001(d) or

171.002(d) may calculate the amount of the credit to which the

entity would otherwise be entitled under this subchapter on a

report and receive that amount as a refundable credit.

(b)

In determining the amount of the credit that may be

refunded to a taxable entity under Subsection (a) of this section,

the limitation prescribed by Section 171.9207 does not apply.

(c)

Notwithstanding Section 171.204(b), a taxable entity

must apply for a credit under this section on or with the report for

the period for which the credit is claimed or, if the entity does

not file a report for the applicable period, on a form adopted by

the comptroller. The form must be submitted to the comptroller on

or before the date a report for the period for which the credit is

claimed would be due.

Sec.

171.9206.

COMBINED REPORTING. (a)

A credit under

this subchapter for qualified research expenses incurred by a

member of a combined group must be claimed on the combined report

required by Section 171.1014 for the group, and the combined group

is the taxable entity for purposes of this subchapter.

(b)

An upper tier entity that includes the total revenue of

a lower tier entity for purposes of computing its taxable margin as

authorized by Section 171.1015 may claim the credit under this

subchapter for qualified research expenses incurred by the lower

tier entity to the extent of the upper tier entity's ownership

interest in the lower tier entity.

Sec.

171.9207.

LIMITATION. The total credit claimed under

this subchapter for a report, including the amount of any

carryforward under Section 171.9208, may not exceed 50 percent of

the amount of tax due for the report before any other applicable tax

credits.

Sec.

171.9208.

CARRYFORWARD. (a)

If a taxable entity is

eligible for a credit that exceeds the limitation under Section

171.9207, the entity may carry the unused credit forward for not

more than 20 consecutive reports.

(b)

Credits, including credit carryforwards, are considered

used in the following order:

(1)

a credit carryforward of unused credits accrued

under Subchapter O before its repeal on January 1, 2008, and claimed

as authorized by Section 18(d), Chapter 1 (H.B. 3), Acts of the 79th

Legislature, 3rd Called Session, 2006;

(2)

a credit carryforward of unused credits accrued

under Subchapter M before its repeal on January 1, 2026, and claimed

as authorized by Section 4, _.B. _, Regular Session, 2025;

(3) a credit carryforward under this subchapter; and

(4) a current year credit.

Sec.

171.9209.

ASSIGNMENT PROHIBITED. A taxable entity may

not convey, assign, or transfer the credit allowed under this

subchapter to another entity unless substantially all of the assets

of the taxable entity are conveyed, assigned, or transferred in the

same transaction.

Sec.

171.9210.

APPLICATION FOR CREDIT. Except as provided

by Section 171.9205(c), a taxable entity must apply for a credit

under this subchapter on or with the report for the period for which

the credit is claimed.

Sec.

171.9211.

RULES. The comptroller may adopt rules and

forms necessary to implement this subchapter.

Sec.

171.9212.

REPORTING OF ESTIMATES.

(a)

Before the

beginning of each regular session of the legislature, the

comptroller shall submit to the legislature and the governor

estimates of:

(1)

the total number of taxable entities that applied

credits under this subchapter against the tax imposed under this

chapter or received refundable credits under this subchapter;

(2)

the total amount of those credits and refundable

credits; and

(3)

the total amount of unused credits carried

forward.

(b)

The comptroller shall provide the estimates required by

this section as part of the report required by Section 403.014,

Government Code.

Sec.

171.9213.

DEPOSIT OF CERTAIN REVENUE.

Notwithstanding

any other law, for each state fiscal year, the comptroller shall

deposit to the credit of the property tax relief fund an amount of

revenue received from the tax imposed under this chapter sufficient

to offset any decrease in deposits to that fund for the state fiscal

year that results from the implementation of this subchapter.

SECTION 2. Section 171.212(a), Tax Code, is amended to read

as follows:

(a)
In this subsection, "qualified research expense" has

the meaning assigned by Section 171.9202.
A taxable entity must

file an amended report under this chapter if:

(1) the [
taxable entity's
] taxable margin
of the

taxable entity or the amount of qualified research expenses

incurred by the taxable entity
is changed as the result of an audit

or other adjustment by the Internal Revenue Service or another

competent authority; or

(2) the taxable entity files an amended federal income

tax return or other return that changes the [
taxable entity's
]

taxable margin
of the taxable entity or the amount of qualified

research expenses incurred by the taxable entity
.

SECTION 3. The following provisions are repealed:

(1) Section 151.3182, Tax Code; and

(2) Subchapter M, Chapter 171, Tax Code.

SECTION 4. (a) The repeal by this Act of Section 151.3182,

Tax Code, does not affect tax liability accruing before the

effective date of this Act. That liability continues in effect as

if Section 151.3182, Tax Code, had not been repealed, and the former

law is continued in effect for the collection of taxes due and for

civil and criminal enforcement of the liability for those taxes.

(b) The repeal by this Act of Subchapter M, Chapter 171, Tax

Code, does not affect an unused credit a taxable entity was

authorized to carry forward under that subchapter. A taxable

entity may continue to apply those credits on or with each

consecutive report until the date the credit would have expired

under Subchapter M, Chapter 171, Tax Code, had that subchapter

continued in effect, and the former law under which the taxable

entity accrued the credits is continued in effect for purposes of

determining the amount of the credits the taxable entity may claim

and the manner in which the taxable entity may claim the credits.

SECTION 5. (a) Subchapter T, Chapter 171, Tax Code, as

added by this Act, applies only to a report originally due on or

after the effective date of this Act.

(b) Notwithstanding any other provision of this Act, a

taxable entity is not eligible for and may not claim on a report a

credit under Subchapter T, Chapter 171, Tax Code, as added by this

Act, if the taxable entity, or a member of the taxable entity's

combined group if the taxable entity is a combined group, received

an exemption under Section 151.3182, Tax Code, during the period

for which the report is based.

SECTION 6. This Act takes effect January 1, 2026.

______________________________

______________________________

President of the Senate

Speaker of the House

I hereby certify that S.B. No. 2206 passed the Senate on

April 28, 2025, by the following vote: Yeas 31, Nays 0.

______________________________

Secretary of the Senate

I hereby certify that S.B. No. 2206 passed the House on

May 28, 2025, by the following vote: Yeas 102, Nays 38, two

present not voting.

______________________________

Chief Clerk of the House

Approved:

______________________________

Date

______________________________

Governor