83R6620 KLA-F
By: Deuell, et al. S.B. No. 859
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 AND SERVICES USED IN
RESEARCH AND DEVELOPMENT ACTIVITIES. (a) In this section:
(1) "Internal Revenue Code" has the meaning assigned
by Section 171.651.
(2) "Qualified research" and "qualified service" have
the meanings assigned by Section 41, Internal Revenue Code.
(b) The sale, storage, use, or other consumption of tangible
personal property directly used or consumed in qualified research
or of qualified services is exempted from the taxes imposed by this
chapter if the property or services are sold, leased, or rented to,
or stored, used, or consumed 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,
use, or other consumption occurs.
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) "Qualified research" has the meaning assigned by
Section 41, Internal Revenue Code, except that the research must be
conducted in this state.
(3) "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
Subsection (b), 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 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.
(c) 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), 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). 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.
(d) The comptroller may adopt rules for determining which
research expenses are qualified research expenses for purposes of
Subsection (a) 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).
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.
(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
until all of the credit has been claimed. Credits and credit
carryforwards are considered to be used in the following order:
(1) a credit carryforward from a previous report; and
(2) 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.
SECTION 4. 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 5. APPLICABILITY. Subchapter M, Chapter 171, Tax
Code, as added by this Act, applies only to a report originally due
on or after January 1, 2014.
SECTION 6. EFFECTIVE DATE. This Act takes effect October 1,
2013.