HB4393 - Relating to a franchise tax credit for, and the application of sales and use taxes to, certain research and development expenses.

  89R5699 CJC-F     By: Geren H.B. No. 4393       A BILL TO BE ENTITLED   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 9 or 28, as   applicable, 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 9 or 28,   as applicable, 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.   &#xA0 [Text truncated for display. Full text available on Congress.gov.]