| (3) Duplication of existing business component. Any
research related to the reproduction of an existing business component,
in whole or in part, from a physical examination of the business component
itself or from plans, blueprints, detailed specifications, or publicly
available information with respect to such business component. This
exclusion does not apply merely because the taxpayer examines an existing
business component in the course of developing its own business component.
(4) Surveys, studies, etc. Any efficiency survey; activity
relating to management function or technique; market research, testing
or development (including advertising or promotions); routine data
collection; or routine or ordinary testing or inspection for quality
control.
(5) Computer software. Any research activities with
respect to internal use software.
(A) For the purposes of this paragraph, internal use
software is computer software developed by, or for the benefit of,
the taxpayer primarily for internal use by the taxpayer.
(B) This exclusion does not apply to software used
in:
(i) an activity that constitutes qualified research,
or
(ii) a production process that meets the requirements
of the Four-Part Test.
(6) Social sciences, etc. Any research in the social
sciences, arts, or humanities.
(7) Funded research. Any research funded by any grant,
contract, or otherwise by another person or governmental entity.
(A) Research is considered funded if:
(i) the taxpayer performing the research for another
person retains no substantial rights to the results of the research;
or
(ii) the payments to the researcher are not contingent
upon the success of the research.
(B) For the purposes of determining whether a taxpayer
retains substantial rights to the results of the research:
(i) Incidental benefits to the researcher from the
performance of the research do not constitute substantial rights.
For example, increased experience in a field of research is not considered
substantial rights.
(ii) A taxpayer does not retain substantial rights
in the research it performs if the taxpayer must pay for the right
to use the results of the research.
(C) If a taxpayer performing research does not retain
substantial rights to the results of the research, the research is
considered funded regardless of whether the payments to the researcher
are contingent upon the success of the research. In this case, all
research activities are considered funded even if the researcher has
expenses that exceed the amount received by the researcher for the
research.
(D) If a taxpayer performing research does retain substantial
rights to the results of the research and the research is considered
funded under subparagraph (A)(ii) of this paragraph, the research
is only funded to the extent of the payments and fair market value
of any property that the taxpayer becomes entitled to by performing
the research. If the expenses related to the research exceed the amount
the researcher is entitled to receive, the research is not considered
funded with respect to the excess expenses. For example, a taxpayer
performs research for another person. Based on the contract, the research
activities are considered funded under subparagraph (A)(ii) of this
paragraph because payments to the researcher are not contingent on
the success of the research. The taxpayer retains substantial rights
to the results of the research. The taxpayer is entitled to $100,000
under the contract but spent $120,000 on the research activities.
In this case, the research is considered funded with respect to $100,000
and is not considered funded with respect to $20,000.
(E) A taxpayer performing research for another person
must identify any other person paying for the research activities
and any person with substantial rights to the results of the research.
(F) All agreements, not only research contracts, entered
into between the taxpayer performing the research and the party funding
the research shall be considered in determining the extent to which
the research is funded.
(G) The provisions of this paragraph shall be applied
separately to each research project undertaken by the taxpayer.
(e) Texas Qualified Research and Development Exemption
Registration. In order to claim an exemption under this section, a
taxpayer must first register with the comptroller and obtain a registration
number.
(1) Registration procedure. To obtain a registration
number, a taxpayer must complete Form AP-234, Texas Registration for
Qualified Research and Development Sales Tax Exemption, its electronic
equivalent, or any form promulgated by the comptroller that succeeds
such form.
(A) The taxpayer requesting the registration number
must certify that it will not, as a taxable entity or as a member
of a combined group, claim a franchise tax research and development
activities credit on a franchise tax report based on an accounting
period during which it claims an exemption under subsection (b) of
this section.
(B) The taxpayer requesting the registration number
must provide all data and information required by the comptroller
to administer the exemption and comply with Tax Code, §151.3182(c)
(Certain Property Used in Research and Development Activities; Reporting
of Estimates and Evaluation).
(2) Retroactive registration. A taxpayer may request
that a registration number be given retroactive effect.
(A) A taxpayer may request that a registration number
have retroactive effect by following the procedures required under
paragraph (1) of this subsection and by completing an annual information
report, described in paragraph (3) of this subsection, for each prior
year for which the registration number is to be effective.
(B) The registration number may be made retroactive
to the later of January 1, 2014, or a date requested by a registrant
that is no more than four years prior to the date the registration
is received, if the date requested is not within an accounting period
during which the registrant, as a taxable entity or as a member of
a combined group, claimed the franchise tax research and development
activities credit.
(C) A registrant who is issued a retroactive registration
number may file a claim for refund of Texas sales and use tax paid
on purchases made on or after the later of January 1, 2014, or the
effective date of the registration number, that qualify for exemption
under subsection (b) of this section, in accordance with the requirements
of §3.325 of this title (relating to Refunds and Payments Under
Protest).
(D) A claim for a carryforward of an unused franchise
tax research and development activities credit under Tax Code, §171.659
does not affect a taxpayer's ability, as a taxable entity or as a
member of a combined group, to request a retroactive registration.
(3) Annual information report. A registrant must submit
an annual information report for each calendar year its registration
number is effective, irrespective of the date on which the original
registration occurred.
(A) The registrant must provide all data and information
required by the comptroller to administer the exemption and comply
with Tax Code, §151.3182(c).
(B) The annual information report must be submitted
electronically unless the comptroller issues a waiver. A registrant
who cannot comply with this requirement due to hardship, impracticality,
or other valid reason must submit a written request to the comptroller
for a waiver of the requirement.
(C) The due date for the annual information report
for the preceding calendar year is March 31. If March 31 falls on
a Saturday, Sunday, or a legal holiday, the due date is the next business
day.
(i) An annual information report filed electronically
must be completed and submitted by 11:59 p.m. central time on the
due date to be considered timely.
(ii) Reports submitted on paper must be postmarked
on or before the due date to be considered timely.
(D) A registrant who fails to timely file an annual
information report for its registration number will be given written
notice of the failure to file. If an annual information report is
not submitted within 60 days of the date of the notice of failure
to file, the registration number will be cancelled by the comptroller
in accordance with paragraph (5) of this subsection.
(4) Direct payment permit holders. A direct payment
permit holder must obtain a registration number as required by paragraph
(1) of this subsection in order to claim an exemption under this section.
A direct payment permit holder with a registration number must file
an annual information report for each year the number is effective
as required by paragraph (3) of this subsection.
Cont'd... |
