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(a)Effective dates.
(1)The provisions of this section apply to franchise
tax reports originally due on or after January 1, 2014.
(2)These provisions expire on December 31, 2026. The
credits allowed under this section cannot be established on a report
originally due after December 31, 2026. The expiration does not affect
the carryforward of a credit authorized under these provisions as
provided in subsection (j) of this section and established on a report
originally due prior to the expiration date of these provisions.
(b)Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1)Affiliated group--Entities in which a controlling
interest is owned by a common owner, either corporate or noncorporate,
or by one or more of the member entities.
(2)Combined group--Taxable entities that are part
of an affiliated group engaged in a unitary business and that are
required to file a combined group report under Tax Code, §171.1014.
(3)Controlling interest--
(A)For a corporation, either more than 50%, owned
directly or indirectly, of the total combined voting power of all
classes of stock of the corporation, or more than 50% owned directly
or indirectly, of the beneficial ownership interest in the voting
stock of the corporation.
(B)For a partnership, association, trust, or other
entity other than a limited liability company, more than 50%, owned
directly or indirectly, of the capital, profits, or beneficial interest
in the partnership, association, trust, or other entity.
(C)For a limited liability company, either more than
50%, owned directly or indirectly, of the total membership interest
of the limited liability company or more than 50%, owned directly
or indirectly, of the beneficial ownership interest in the membership
interest of the limited liability company.
(4)Internal Revenue Code--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 that
are later adopted under that code applicable to the tax year to which
the provisions of the code in effect on that date applied.
(5)Public or private institution of higher education--
(A)an institution of higher education, as defined
by Education Code, §61.003; or
(B)a private or independent institution of higher
education, as defined by Education Code, §61.003.
(6)Qualified research--This term has the meaning given
in Internal Revenue Code, §41(d), except that the research must
be conducted in Texas.
(7)Qualified research expense--This term has the meaning
given in Internal Revenue Code, §41(b), except that the expense
must be for qualified research conducted in Texas.
(8)Registration Number--The number issued by the comptroller
to a person who submits the Texas Registration for Qualified Research
and Development Sales Tax Exemption form.
(9)Research and development activities credit--A credit
against franchise tax for qualified research expenses that is allowed
under Tax Code, Chapter 171, Subchapter M.
(10)Research and development credit--A credit against
franchise tax for research and development expenses allowed under
Tax Code, Chapter 171, Subchapter O, and established on a franchise
tax report originally due prior to January 1, 2008.
(11)Tax period--The period on which a franchise tax
report is based as provided by §3.584(c) of this title (relating
to Margin: Reports and Payments).
(c)Eligibility for credit. A taxable entity is eligible
to claim a research and development activities credit for the periods
in which the taxable entity is engaged in qualified research and incurs
qualified research expenses. The credit may be claimed on a franchise
tax report for qualified research expenses incurred during the period
on which the report is based.
(d)Ineligibility for credit.
(1)A taxable entity is not eligible to claim a credit
on a franchise tax report 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 from sales and use tax under Tax Code, §151.3182
during that period.
(2)A taxable entity's ineligibility under this subsection
does not affect the taxable entity's eligibility to claim a carryforward
of unused credit under subsection (j) of this section.
(e)Amount of credit.
(1)Qualified research expenses in Texas. Subject to
subsection (f) of this section, and except as provided by paragraphs
(2), (3), and (4) of this subsection, the credit allowed for any report
equals 5.0% of the difference between:
(A)the qualified research expenses incurred during
the period on which the report is based; and
(B)50% of the average amount of qualified research
expenses incurred during the three tax periods preceding the period
on which the report is based.
(2)Entities without qualified research expenses in
each of the three preceding tax periods. Except as provided by paragraph
(4) of this subsection, 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% of the qualified research expenses incurred
during that period.
(3)Qualified research expenses under a higher education
contract. Subject to subsection (f) of this section, and except as
provided by paragraph (4) of this subsection, 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 incurs qualified research expenses in this state under the
contract during the period on which the report is based, then the
credit for the report equals 6.25% of the difference between:
(A)all qualified research expenses incurred during
the period on which the report is based; and
(B)50% of the average amount of all qualified research
expenses incurred during the three tax periods preceding the period
on which the report is based.
(4)Entities with qualified research expenses under
higher education contracts but without qualified research expenses
in each of the three preceding tax periods. If the taxable entity
incurs qualified research expenses in Texas under a contract with
one or more public or private institutions of higher education for
the performance of qualified research during the period on which the
report is based, but 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, then the credit for the period on which
the report is based equals 3.125% of all qualified research expenses
incurred during that period.
(5)Same method of computing qualified research expenses
required. Notwithstanding whether the statute of limitations for claiming
a credit under this section has expired for any tax period used in
determining the average amount of qualified research expenses under
paragraph (1)(B) or (3)(B) of this subsection, 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 paragraph (1)(A) or (3)(A) of
this subsection.
(f)Attribution of expenses following transfer of controlling
interest.
(1)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 section, then the amount of the
acquiring taxable entity's qualified research expenses equals the
sum of:
(A)the amount of qualified research expenses incurred
by the acquiring taxable entity during the period on which the report
is based; and
(B)subject to paragraph (4) of this subsection, 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.
(2)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 section
for qualified research expenses incurred by the transferred taxable
entity or unit during the period if:
(A)the taxable entity that makes the sale or transfer
is ineligible for the credit under subsection (d) of this section;
or
(B)the acquiring taxable entity claims a credit under
this section for the corresponding period.
(3)If during any of the three tax periods following
the period in which a sale or other transfer described by paragraph
(2) of this subsection 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:
(A)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, subject to paragraph
(5) of this subsection; and
(B)excluded from the qualified research expenses incurred
by the acquiring taxable entity for the tax period during which the
reimbursement was paid.
(4)An acquiring taxable entity may not include on
a report the amount of qualified research expenses otherwise authorized
by paragraph (1)(B) of this subsection if the taxable entity that
made the sale or other transfer described by paragraph (2) of this
subsection received an exemption under Tax Code, §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.
(5)A taxable entity that makes a sale or other transfer
described by paragraph (2) of this subsection may not include on a
report the amount of reimbursement otherwise authorized by paragraph
(3)(A) of this subsection if the reimbursement is for research activities
that occurred during a tax period in which the entity that makes a
sale or other transfer received an exemption under Tax Code, §151.3182.
(g)Combined reporting. A credit under this section
for qualified research expenses incurred by a member of a combined
group must be claimed on the combined report for the group required
by Tax Code, §171.1014 (Combined Reporting; Affiliated Group
Engaged in Unitary Business). The combined group is the taxable entity
for purposes of this section.
(h)Tiered partnership reporting.
(1)An upper tier entity and a lower tier entity may
claim a credit under this section for qualified research expenses;
however, an upper tier entity and a lower tier entity cannot claim
a credit under this section for the same qualified research expense.
(2)An upper tier entity that includes the total revenue
of a lower tier entity for purposes of computing its taxable margin
as authorized by Tax Code, §171.1015 may claim the credit under
this section 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.
(i)Limitation. The total credit claimed under this
section for a report, including the amount of any carryforward credit
under subsection (j) of this section, may not exceed 50% of the amount
of franchise tax due for the report before any other applicable tax
credits.
(j)Carryforward.
(1)If a taxable entity is eligible for a credit that
exceeds the limitation under subsection (i) of this section, the taxable
entity may carry the unused credit forward for not more than 20 consecutive
reports.
(2)Credits, including credit carryforwards, are considered
to be used in the following order:
(A)a credit carryforward of unused research and development
credits accrued under Tax Code, Chapter 171, Subchapter O, before
its repeal on January 1, 2008, and claimed as authorized by §3.593
of this title (relating to Margin: Franchise Tax Credits);
(B)a credit carryforward under this section; and
(C)a current year credit.
(k)Assignment prohibited. A taxable entity may not
convey, assign, or transfer the credit allowed under this section
to another entity unless all of the assets of the taxable entity are
conveyed, assigned, or transferred in the same transaction.
(l)Application for credit.
(1)A taxable entity must apply for a credit under
this section. A taxable entity applies for the credit by claiming
the credit on or with the franchise tax report for the period for
which the credit is claimed. To apply for a credit, a taxable entity
must also complete Form 05-178, Texas Franchise Tax Research and Development
Activities Credits Schedule, its electronic equivalent, or any form
promulgated by the comptroller that succeeds such form.
(2)The comptroller may require a taxable entity that
claims a credit under this section to provide all data and information
required for the comptroller to evaluate the credit and to comply
with Tax Code, §151.3182(c).
(m)Amending reports.
(1)If a report was originally due and filed after
the effective date of this section and a credit allowed under this
section was not claimed, a taxable entity may file an amended report
within the statute of limitation to claim a credit, if the taxable
entity or a member of its combined group does not have an active Registration
Number for that period. See §3.584 of this title for information
about filing an amended report.
(2)If a taxable entity or member of the combined group
has or had a Registration Number for a period it intends to claim
a credit allowed under this section, the taxable entity or member
of the combined group must submit a written request to cancel the
registration before claiming a credit with the following information:
(A)the tax period(s) covered by the report which it
intends to claim a credit allowed under this section; and
(B)a statement whether tax-exempt purchases were made.
If tax-exempt purchases were made, include an original or amended
sales and use tax report with tax due, penalty, and interest for the
sales tax periods that cover the tax-exempt purchases.
(3)If a report was filed claiming a credit allowed
under this section and the taxable entity later decides to claim a
sales and use tax exemption under Tax Code §151.3182, the taxable
entity must:
(A)file an amended report that does not claim the
credit under this section and pay any tax, penalty, and interest due;
(B)apply for a Registration Number; and
(C)file a request for a sales and use tax refund for
taxes paid on purchases under Tax Code, §151.3182.
The agency certifies that legal counsel
has reviewed the adoption and found it to be a valid exercise of the
agency's legal authority.
Filed with the Office
of the Secretary of State on March 16, 2015
TRD-201500885 Lita Gonzalez
General Counsel
Comptroller of Public Accounts
Effective date: April 5, 2015
Proposal publication date: January 30, 2015
For further information, please call: (512) 475-0387
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