By Barrientos                                         S.B. No. 1027
       74R7852 T
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to a franchise tax exemption for research and development
    1-3  activities.
    1-4        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-5        SECTION 1.  The Tax Code is amended by adding a new Section
    1-6  171.1111 to read as follows:
    1-7        Section 171.1111.  Credit for Research and Development
    1-8  Activities.  (a)  A domestic or foreign corporation shall be
    1-9  allowed a credit against the earned surplus component of the
   1-10  franchise tax due under this chapter, equal to the sum of (i) ten
   1-11  percent of the excess, if any, of the Texas qualified research
   1-12  expenses for the report year, over the Texas base amount; and
   1-13  (ii)  fifteen percent of the basic research payments determined
   1-14  under subsection (e)(1)(A) of Section 41 of the Internal Revenue
   1-15  Code.  The terms, "qualified research expense," "base amount,"
   1-16  "qualified organization base period amount," "basic research," and
   1-17  any other terms affecting the calculation of said credits shall,
   1-18  unless the context otherwise requires, have the same meanings as
   1-19  under Section 41 of said Code, Code Section 174, and the underlying
   1-20  Treasury regulations, but shall only apply to expenditures for
   1-21  research conducted in the state.
   1-22        (b)  For the first report year in which the taxpayer claims
   1-23  the credit, the maximum allowable credit is one hundred thousand
   1-24  dollars.  For the second report year, the maximum allowable credit
    2-1  is two hundred fifty thousand dollars.  For the third report year,
    2-2  the maximum allowable credit is four hundred thousand dollars.  For
    2-3  each report year after the third report year, the maximum allowable
    2-4  credit is five hundred thousand dollars.  The amount of the credit
    2-5  shall not reduce the tax below zero.  Research credits that exceed
    2-6  the maximum allowable credit in a report year may be carried
    2-7  forward for not more than fifteen report years.
    2-8        (c)  The Comptroller shall promulgate such rules as are
    2-9  necessary to implement this section.
   2-10        (d)  The provisions of this section shall apply to reports
   2-11  due on or after January 1, 1996.  The base amount and the qualified
   2-12  organization base period amount with respect to such report year
   2-13  shall be the amount which bears the same ratio to the base amount
   2-14  and the qualified organization base period amount for such year,
   2-15  determined without regard to this paragraph, as the number of days
   2-16  in such report year on or after January 1, 1995 bears to the total
   2-17  number of days in that report year.
   2-18        SECTION 2.  The importance of this legislation and the
   2-19  crowded condition of the calendars in both houses create an
   2-20  emergency and an imperative public necessity that the
   2-21  constitutional rule requiring bills to be read on three several
   2-22  days in each house be suspended, and this rule is hereby suspended.