By: Murphy, Alvarado, Hilderbran, Button, H.B. No. 800
Rodriguez of Travis, et al.
A BILL TO BE ENTITLED
AN ACT
relating to a sales and use tax exemption and a franchise tax credit
related to certain research and development activities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. LEGISLATIVE FINDINGS AND PURPOSES. (a) The
legislature finds that:
(1) Texas economic activity accounts for more than
eight percent of the economic activity in the United States, but
accounts for only five percent of research and development spending
in the United States;
(2) research and development activities create:
(A) high-paying jobs that provide substantial
benefits to the Texas economy; and
(B) new technologies and applications that
generate economic efficiency and growth; and
(3) private-sector research and development
activities create partnerships between private-sector entities and
institutions of higher education, and those partnerships expand
opportunities for innovation and learning.
(b) Based on the findings specified in Subsection (a) of
this section, the purposes of this Act are to:
(1) make Texas economically competitive in the field
of research and development;
(2) reduce the tax burden on research and development
activities in Texas and encourage new investments in this state;
(3) promote the creation of new, highly skilled,
high-paying jobs in Texas; and
(4) complement this state's manufacturing industries
by encouraging innovation and efficiency in applying new
technologies and producing new products.
SECTION 2. SALES AND USE TAX EXEMPTION. Subchapter H,
Chapter 151, Tax Code, is amended by adding Section 151.3182 to read
as follows:
Sec. 151.3182. CERTAIN PROPERTY USED IN RESEARCH AND
DEVELOPMENT ACTIVITIES; REPORTING OF ESTIMATES AND EVALUATION. (a)
In this section:
(1) "Depreciable tangible personal property" means
tangible personal property that:
(A) has a useful life that exceeds one year; and
(B) is subject to depreciation under:
(i) generally accepted accounting
principles; or
(ii) Section 167 or 168, Internal Revenue
Code.
(2) "Internal Revenue Code" has the meaning assigned
by Section 171.651.
(3) "Qualified research" has the meaning assigned by
Section 41, Internal Revenue Code.
(b) The sale, storage, or use of depreciable tangible
personal property directly used in qualified research is exempted
from the taxes imposed by this chapter if the property is sold,
leased, or rented to, or stored or used by, a person who:
(1) is engaged in qualified research; and
(2) will not, as a taxable entity as defined by Section
171.0002 or as a member of a combined group that is a taxable
entity, claim a credit under Subchapter M, Chapter 171, on a
franchise tax report for the period during which the sale, storage,
or use occurs.
(c) Before the beginning of each regular session of the
legislature, the comptroller shall submit to the legislature and
the governor:
(1) an estimate of the total number of persons who
received exemptions under this section and an estimate of the total
amount of those exemptions; and
(2) an evaluation of the effect of the exemption under
this section, in combination with the credit authorized by
Subchapter M, Chapter 171, that is conducted by an independent
researcher at a center for research authorized by Section 1.005,
Education Code, on:
(A) the amount of qualified research performed in
this state;
(B) employment in research and development in
this state;
(C) economic activity in this state; and
(D) state tax revenues.
(d) The comptroller shall require a person who receives an
exemption under this section to complete a form to provide the
information necessary for the comptroller to make the evaluation
required by Subsection (c)(2). The information provided on the
form is confidential and not subject to disclosure under Chapter
552, Government Code.
(e) The comptroller shall provide the estimates and
evaluation required by Subsection (c) as part of the report
required by Section 403.014, Government Code.
(f) This section expires December 31, 2026.
SECTION 3. FRANCHISE TAX CREDIT. Chapter 171, Tax Code, is
amended by adding Subchapter M to read as follows:
SUBCHAPTER M. TAX CREDIT FOR CERTAIN RESEARCH AND DEVELOPMENT
ACTIVITIES
Sec. 171.651. DEFINITIONS. In this subchapter:
(1) "Internal Revenue Code" means the Internal Revenue
Code of 1986 in effect on December 31, 2011, excluding any changes
made by federal law after that date, but including any regulations
adopted under that code applicable to the tax year to which the
provisions of the code in effect on that date applied.
(2) "Public or private institution of higher
education" means:
(A) an institution of higher education, as
defined by Section 61.003, Education Code; or
(B) a private or independent institution of
higher education, as defined by Section 61.003, Education Code.
(3) "Qualified research" has the meaning assigned by
Section 41, Internal Revenue Code, except that the research must be
conducted in this state.
(4) "Qualified research expense" has the meaning
assigned by Section 41, Internal Revenue Code, except that the
expense must be for research conducted in this state.
Sec. 171.652. 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 and limitations provided by
this subchapter.
Sec. 171.653. INELIGIBILITY FOR CREDIT FOR CERTAIN PERIODS.
(a) A taxable entity is not eligible for a credit on a report
against the tax imposed under this chapter for qualified research
expenses incurred during the period on which the report is based if
the taxable entity, or a member of the combined group if the taxable
entity is a combined group, received an exemption under Section
151.3182 during that period.
(b) A taxable entity's ineligibility under this section for
a credit on a report for the period on which the report is based does
not affect the taxable entity's eligibility to claim a carryforward
of unused credit under Section 171.659 on that report.
Sec. 171.654. AMOUNT OF CREDIT. (a) Except as provided by
Subsections (b), (c), and (d), the credit for any report equals five
percent of the difference between:
(1) the qualified research expenses incurred during
the period on which the report is based, subject to Section 171.655;
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, subject to Section 171.655.
(b) If the taxable entity contracts with one or more public
or private institutions of higher education for the performance of
qualified research and the taxable entity has qualified research
expenses incurred in this state by the taxable entity under the
contract during the period on which the report is based, the credit
for the report equals 6.25 percent of the difference between:
(1) all qualified research expenses incurred during
the period on which the report is based, subject to Section 171.655;
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, subject to Section 171.655.
(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 2.5
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 for the performance of
qualified research and the taxable entity has qualified research
expenses incurred in this state by the taxable entity 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 3.125 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. 171.655. ATTRIBUTION OF EXPENSES FOLLOWING TRANSFER OF
CONTROLLING INTEREST. (a) If a taxable entity acquires a
controlling interest in another taxable entity or in a separate
unit of another taxable entity during a tax period with respect to
which the acquiring taxable entity claims a credit under this
subchapter, the amount of the acquiring taxable entity's qualified
research expenses equals the sum of:
(1) the amount of qualified research expenses incurred
by the acquiring taxable entity during the period on which the
report is based; and
(2) subject to Subsection (d), the amount of qualified
research expenses incurred by the acquired taxable entity or unit
during the portion of the period on which the report is based that
precedes the date of the acquisition.
(b) A taxable entity that sells or otherwise transfers to
another taxable entity a controlling interest in another taxable
entity or in a separate unit of a taxable entity during a period on
which a report is based may not claim a credit under this subchapter
for qualified research expenses incurred by the transferred taxable
entity or unit during the period if the taxable entity is ineligible
for the credit under Section 171.653 or if the acquiring taxable
entity claims a credit under this subchapter for the corresponding
period.
(c) If during any of the three tax periods following the tax
period in which a sale or other transfer described by Subsection (b)
occurs, the taxable entity that sold or otherwise transferred the
controlling interest reimburses the acquiring taxable entity for
research activities conducted on behalf of the taxable entity that
made the sale or other transfer, the amount of the reimbursement is:
(1) subject to Subsection (e), included as qualified
research expenses incurred by the taxable entity that made the sale
or other transfer for the tax period during which the reimbursement
was paid; and
(2) excluded from the qualified research expenses
incurred by the acquiring taxable entity for the tax period during
which the reimbursement was paid.
(d) An acquiring taxable entity may not include on a report
the amount of qualified research expenses otherwise authorized by
Subsection (a)(2) to be included if the taxable entity that made the
sale or other transfer described by Subsection (b) received an
exemption under Section 151.3182 during the portion of the period
on which the acquiring taxable entity's report is based that
precedes the date of the acquisition.
(e) A taxable entity that makes a sale or other transfer
described by Subsection (b) may not include on a report the amount
of reimbursement otherwise authorized by Subsection (c)(1) to be
included if the reimbursement is for research activities that
occurred during a tax period under this chapter during which that
taxable entity received an exemption under Section 151.3182.
Sec. 171.656. 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. 171.657. BURDEN OF ESTABLISHING CREDIT. The burden of
establishing entitlement to and the value of the credit is on the
taxable entity.
Sec. 171.658. LIMITATIONS. The total credit claimed under
this subchapter for a report, including the amount of any
carryforward credit under Section 171.659, may not exceed 50
percent of the amount of franchise tax due for the report before any
other applicable tax credits.
Sec. 171.659. CARRYFORWARD. If a taxable entity is
eligible for a credit that exceeds the limitation under Section
171.658, the taxable entity may carry the unused credit forward for
not more than 20 consecutive reports. Credits, including credit
carryforwards, are considered to be 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 under this subchapter; and
(3) a current year credit.
Sec. 171.660. ASSIGNMENT PROHIBITED. A taxable entity may
not convey, assign, or transfer the credit allowed under this
subchapter to another entity unless all of the assets of the taxable
entity are conveyed, assigned, or transferred in the same
transaction.
Sec. 171.661. APPLICATION FOR CREDIT. A taxable entity
must apply for a credit under this subchapter on or with the tax
report for the period for which the credit is claimed.
Sec. 171.662. RULES. The comptroller shall adopt rules and
forms necessary to implement this subchapter.
Sec. 171.663. REPORTING OF ESTIMATES AND COLLECTION OF
INFORMATION. (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;
(2) the total amount of those credits; and
(3) the total amount of unused credits carried
forward.
(b) The comptroller may require a taxable entity that claims
a credit under this subchapter to complete a form to provide the
information necessary for the comptroller to make the evaluations
required by Section 151.3182. The information provided on the form
is confidential and not subject to disclosure under Chapter 552,
Government Code.
(c) The comptroller shall provide the estimates required by
this section as part of the report required by Section 403.014,
Government Code.
Sec. 171.664. DEPOSIT OF CERTAIN REVENUE. Notwithstanding
any other law, for each fiscal year, the comptroller must 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 that results from the
implementation of this subchapter.
Sec. 171.665. EXPIRATION. (a) This subchapter expires
December 31, 2026.
(b) The expiration of this subchapter does not affect the
carryforward of a credit under Section 171.659 or a credit
authorized under this subchapter established before the date this
subchapter expires.
SECTION 4. INITIAL REPORTING OF INFORMATION. The
comptroller of public accounts shall submit the initial estimates
required by Sections 151.3182(c)(1) and 171.663, Tax Code, as added
by this Act, before the 84th Regular Legislative Session commences
in January 2015. Notwithstanding Section 151.3182(c)(2), Tax Code,
as added by this Act, the comptroller is not required to submit the
initial evaluation required by that section until January 2017, but
shall submit that evaluation before the 85th Regular Legislative
Session commences.
SECTION 5. TRANSITION PROVISION. Section 151.3182, Tax
Code, as added by this Act, does not affect tax liability accruing
before the effective date of this Act. That liability continues in
effect as if this Act had not been enacted, 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.
SECTION 6. APPLICABILITY. Subchapter M, 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.
SECTION 7. EFFECTIVE DATE. This Act takes effect January 1,
2014.