By Greenberg                                    H.B. No. 1754

      75R5167 DAK-D                           

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to a franchise tax exemption for certain research and

 1-3     development activities.

 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-5           SECTION 1.  Subchapter C, Chapter 171, Tax Code, is amended

 1-6     by adding Section 171.114 to read as follows:

 1-7           Sec. 171.114.  CREDIT ON NET TAXABLE EARNED SURPLUS FOR

 1-8     RESEARCH AND DEVELOPMENT ACTIVITIES.  (a)  A corporation is

 1-9     entitled to a credit against the tax due under this chapter on net

1-10     taxable earned surplus as provided by this section.

1-11           (b)  Subject to Subsections (c) and (d), the credit for any

1-12     privilege period equals the sum of:

1-13                 (1)  10 percent of the excess of the qualified research

1-14     expenses for this state divided by the base amount for this state;

1-15     and

1-16                 (2)  15 percent of the basic research payments

1-17     determined under Section 41(e)(1)(A), Internal Revenue Code of

1-18     1986, for this state.

1-19           (c)  The credit may not exceed:

1-20                 (1)  for the first privilege period in which the

1-21     taxpayer claims the credit, $100,000;

1-22                 (2)  for the second privilege period, $250,000;

1-23                 (3)  for the third privilege period, $400,000; and

1-24                 (4)  for the fourth and subsequent privilege periods,

 2-1     $500,000.

 2-2           (d)  The amount of the credit may not reduce the tax below

 2-3     zero.

 2-4           (e)  If a taxpayer is entitled to a credit that exceeds the

 2-5     limitation under Subsection (c) for a privilege period, the

 2-6     taxpayer may carry the credit forward for not more than 15

 2-7     consecutive privilege periods.

 2-8           (f)  If a corporation's accounting year does not correspond

 2-9     to the privilege period, the base amount and any other amount used

2-10     to calculate the credit shall be multiplied by a ratio the

2-11     numerator of which is the number of days in the corporation's

2-12     accounting year that are also in the privilege period and the

2-13     denominator of which is the number of days in the privilege period.

2-14           (g)  The comptroller shall adopt rules necessary to implement

2-15     this section.

2-16           (h)  In this section, "base amount," "basic research," and

2-17     "qualified research expense" have the meanings assigned those terms

2-18     by Section 41, Internal Revenue Code of 1986.

2-19           SECTION 2.  This Act takes effect January 1, 1998, and

2-20     applies only to a report originally due on or after that date.

2-21           SECTION 3.  The importance of this legislation and the

2-22     crowded condition of the calendars in both houses create an

2-23     emergency and an imperative public necessity that the

2-24     constitutional rule requiring bills to be read on three several

2-25     days in each house be suspended, and this rule is hereby suspended.