SRC-JBJ, PNG S.B. 5 76(R)   BILL ANALYSIS


Senate Research Center   S.B. 5
76R3373 DAK-DBy: Sibley
Finance
3/2/1999
As Filed


DIGEST 

Currently, a corporation in Texas may not claim a tax credit for conducting
qualified research and development (R&D) activities.  Moreover, at least 15
states offer some form of an R&D tax credit.  S.B. 5 would authorize a five
percent franchise tax credit or refund for qualified research expenses and
basic research payments made in Texas, but the value of the credit in any
given tax year is restricted to 25 percent of the corporation's franchise
tax liability and to a total credit or refund of $125 million per year. 

PURPOSE

As proposed, S.B. 5 provides a research and development refund or credit
against the franchise tax for corporations conducting qualified research
and development. 

RULEMAKING AUTHORITY

Rulemaking authority is granted to the Texas Comptroller of Public Accounts
in SECTION 1 (Section 171.728, Tax Code) of this bill. 

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Chapter 171, Tax Code, by adding Subchapter O, as follows:

SUBCHAPTER O. TAX REFUND OR CREDIT FOR CERTAIN RESEARCH AND DEVELOPMENT
ACTIVITIES 

Sec.  171.721.  DEFINITIONS.  Defines "base amount," "basic research
payment," and "qualified research expense." 

Sec.  171.722.  ENTITLEMENT.  Provides that a corporation is entitled to a
refund as provided by this subchapter against the tax imposed by this
chapter. 

Sec.  171.723.  AMOUNT.  Establishes that the refund for any privilege
period equals five percent of the sum of certain qualified research
expenses and basic research payments, except as provided by Subsection (b),
and subject to adjustment under Section 171.726.  Prohibits the total
refund claimed under this section for a privilege period from exceeding 25
percent of the net franchise tax for that period after any other applicable
tax credits or refunds.  Requires a certain procedure for calculating the
base amount and any other amount in order to calculate the refund if the
corporation's accounting year does not correspond to the privilege period.

Sec.  171.724.  APPLICATION.  Requires a corporation to apply for a refund
on or with the tax report for same period as the claimed refund.  Requires
the Texas Comptroller of Public Accounts (comptroller) to promulgate a form
for the refund application.  Requires a corporation to use this form in
applying for the refund. 

Sec.  171.725. DETERMINATION OF TOTAL AMOUNT OF REFUNDS.  Requires the
comptroller to determine the total amount of refunds claimed for a tax year
for all reports filed by a certain date. 

Sec.  171.726.  ADJUSTMENT AND PAYMENT OF REFUND.  Requires the comptroller
to send to a corporation entitled to a refund the refund or a portion of
the refund under certain  circumstances by a certain date.  Requires the
comptroller to determine a corporation's refund by a certain procedure if
the total amount of the refund is greater than $125 million. 

Sec.  171.727.  CREDIT.  Authorizes the comptroller to allow a corporation
to take a direct credit against the tax owed under this chapter instead of
issuing a refund after the payment of the tax if the total amount of the
refund is a certain sum.  Provides that if the comptroller makes the
determination to allow a direct credit against the tax owed, the provisions
of this subchapter regarding the entitlement to amount of limitations of a
refund apply in the same manner to the credit. 

Sec.  171.728.  RULES.  Grants rulemaking authority to the comptroller to
implement this subchapter. 

SECTION 2.  (a)  Effective date: January 1, 2000.

           (b)  Provides that this Act applies only to:

  (1) a report originally due on or after the effective date; and
  (2) an expense or payment made on or after January 1, 1999.

SECTION 3. Emergency clause.