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(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. A taxpayer
uses software internally if the software was developed for use in
the operation of the business. Computer software that is developed
to be commercially sold, leased, licensed, or otherwise marketed for
separately stated consideration to unrelated third parties is not
internal use software.
(B)Software developed by a taxpayer primarily for
internal use by an entity that is part of an affiliated group to which
the taxpayer also belongs shall be considered internal use software
for purposes of this paragraph.
(C)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.
(D)The determination as to whether software is internal
use software depends on the facts and circumstances existing at the
beginning of the development of the software.
(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.
(5)Cancellation of registration number by the comptroller.
The comptroller will cancel the registration number of a registrant
who fails to comply with the provisions of this section. For example,
the comptroller may cancel the registration number of a registrant
who fails to file an annual information report or who claims the franchise
tax research and development activities credit without first cancelling
its registration number, as required by paragraph (8) of this subsection.
The comptroller shall give written notice of the cancellation to the
registrant. The notice may be personally served on the registrant
or sent by regular mail to the registrant's address as shown in the
comptroller's records. The former registrant may not claim an exemption
under this section during the period when the registration number
is cancelled. A former registrant that purchases an item under a cancelled
registration number may be subject to a criminal penalty under Tax
Code, §151.707 (Resale or Exemption Certificate; Criminal Penalty)
and §3.287(d)(3) of this title (relating to Exemption Certificates).
(6)Effective date of cancellation. A registrant whose
registration number is cancelled by the comptroller is responsible
for remitting Texas sales and use tax, and penalty and interest from
the date of purchase, on any items purchased tax-free pursuant to
Tax Code, §151.3182 on or after the effective date of cancellation.
In the case of a registrant whose registration number is cancelled
because of a failure to file an annual information report, the effective
date of the cancellation is December 31 of the last year for which
the registrant filed an annual information report. In the case of
a registrant whose registration number is cancelled because the registrant,
as a taxable entity or as a member of a combined group, claimed the
franchise tax research and development activities credit, the effective
date of cancellation is the beginning date of the accounting period
covered by the franchise tax report on which the credit was claimed.
(7)Reinstatement following cancellation. A former
registrant who has had its registration number cancelled by the comptroller
may submit a request in writing to have the registration number reinstated.
(A)A former registrant whose registration number has
been cancelled may request reinstatement of the number be given retroactive
effect. The registrant must file an annual information report for
each prior year for which the registration number is to be effective.
(B)A registration number will not be reinstated for
periods during which the former registrant is not eligible for the
exemption under this section.
(C)Before the comptroller will reinstate a registration
number, the former registrant must remit any Texas sales and use taxes,
as well as applicable penalties and interest from the date of purchase,
on all purchases made tax-free under this section during periods when
the registrant was not eligible for the exemption under this section.
(8)Cancellation of registration number by registrant.
A registrant who has received a registration number and subsequently
chooses to claim the franchise tax research and development activities
credit must cancel the registration number. The registrant is responsible
for remitting Texas sales and use tax, and penalty and interest from
the date of purchase, on any items purchased tax-free under this section
during any accounting periods covered by a franchise tax report on
which the credit is claimed.
(f)Texas Qualified Research Sales and Use Tax Exemption
Certificate. Beginning January 1, 2014, a retailer may accept a valid
and complete Form 01-931, Texas Qualified Research Sales and Use Tax
Exemption Certificate or any form promulgated by the comptroller or
that succeeds such form, in lieu of Texas sales and use tax on the
sale of depreciable tangible personal property that qualifies for
exemption under subsection (b) of this section. To be valid and complete,
a Texas Qualified Research Sales and Use Tax Exemption Certificate
must bear the registration number issued to the registrant by the
comptroller and must be signed by the registrant or the registrant's
authorized agent. Texas Qualified Research Sales and Use Tax Exemption
Certificates are subject to the requirements of §3.287(d) of
this title. A retailer must maintain a copy of the Texas Qualified
Research Sales and Use Tax Exemption Certificate accepted in lieu
of tax on a sale and all records supporting that transaction. Refer
to §3.281 of this title (relating to Records Required; Information
Required).
(g)Divergent use. When a registrant uses an item purchased
under a valid Texas Qualified Research Sales and Use Tax Exemption
Certificate in a taxable manner, the registrant is liable for payment
of Texas sales and use tax, plus penalty and interest as applicable,
based on the fair market rental value of the tangible personal property
for the period of time used in the taxable manner. This subsection
applies to an item that is used for any purpose other than for use
in qualified research, whether that use occurs before, during, or
after the time when the item is used in qualified research. Refer
to Tax Code, §151.155 (Exemption Certificate).
(h)Refund of Texas sales and use tax paid on depreciable
tangible personal property used in qualified research. A registrant
with a valid 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.
(i)Effective dates.
(1)The provisions of this section apply to the sale,
storage, or use of tangible personal property occurring on or after
January 1, 2014.
(2)The sales and use tax exemption for depreciable
tangible personal property used in qualified research expires on December
31, 2026.
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 October 4, 2021
TRD-202103915 William Hamner
Special Counsel for Tax
Administration
Comptroller of Public Accounts
Effective date: October 24, 2021
Proposal publication date: April 16, 2021
For further information, please call: (512) 475-2220
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