By Sadler H.B. No. 3152 76R9248 T A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to tax incentives for investment in manufacturing and 1-3 research and development. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Chapter 171, Tax Code, is amended by adding 1-6 Subchapter N to read as follows: 1-7 SUBCHAPTER N. CREDIT FOR INVESTMENT IN MANUFACTURING, 1-8 RESEARCH AND DEVELOPMENT, AND EDUCATION 1-9 Sec. 171.701. DEFINITION. In this subchapter, 1-10 "manufacturing" has the meaning assigned by Section 151.3181. 1-11 Sec. 171.702. ENTITLEMENT. A corporation is entitled to a 1-12 credit in the amount and under the conditions and limitations 1-13 provided by this subchapter against the tax imposed under this 1-14 chapter. 1-15 Sec. 171.703. MANUFACTURING INVESTMENT CREDIT. (a) A 1-16 corporation is entitled to a credit for money spent on purchasing 1-17 or leasing buildings, fixtures, machinery, equipment, and any other 1-18 property eligible for depreciation under Section 167 or 168, 1-19 Internal Revenue Code, placed in service in this state for 1-20 manufacturing or research and development of products, 1-21 manufacturing processes, or technology. 1-22 (b) The credit may be taken only for property placed in 1-23 service on or after January 1, 2000. 1-24 (c) Subject to the limitations in subsections (d) and (e), 2-1 the amount of the credit is 2 percent of the amount spent under 2-2 Subsection (a). The 2 percent credit may be taken in the reporting 2-3 period in which the property is placed in service and in each of 2-4 the four succeeding reporting periods. 2-5 (d) The credit may be taken by a corporation only for 2-6 qualified property in projects that (1) exceed $100 million, or (2) 2-7 create 50 or more new permanent full-time or full-time equivalent 2-8 jobs in this state after January 1, 2000. A "project" means a 2-9 single transaction or a combination of related transactions to 2-10 acquire qualified investment property and may encompass multiple 2-11 locations, provided such locations are functionally related and are 2-12 not greater than 20 miles apart. In the first reporting period in 2-13 which (1) the qualified investments in a project exceed $100 2-14 million, or (2) the project results in 50 or more new permanent 2-15 full-time or full-time equivalent jobs in this state, the credit 2-16 may be taken for all qualified property placed in service on that 2-17 project between January 1, 2000 and the end of that reporting 2-18 period, and credit on that investment may also be claimed in each 2-19 of the four succeeding reporting periods. 2-20 (e) The credit shall be 25% of the amount calculated under 2-21 subsections (c) and (d) for reports due on or after January 1, 2001 2-22 and before January 1, 2002, 50% for reports due on or after January 2-23 1, 2002 and before January 1, 2003, 75% for reports due on or after 2-24 January 1, 2003 and before January 1, 2004, and 100% for reports 2-25 due on or after January 1, 2004. 2-26 Sec. 171.704. RESEARCH INVESTMENT CREDIT. (a) A 2-27 corporation is entitled to a credit for: 3-1 (1) qualified research expenses, as defined by Section 3-2 41, Internal Revenue Code, made in this state; and 3-3 (2) the basic research payments determined under 3-4 Section 41(e)(1)(A), Internal Revenue Code, made in this state. 3-5 (b) Subject to the limitations in subsection (c), the amount 3-6 of the credit is two percent of the amount spent under Subsection 3-7 (a). The credit may be taken in the reporting period in which the 3-8 expenses or payments are made and in each of the four succceeding 3-9 reporting periods. 3-10 (c) The credit shall be 25% of the amount calculated under 3-11 subsection (b) for reports due on or after October 1, 1999 and 3-12 before January 1, 2001, 50% for reports due on or after January 1, 3-13 2001 and before January 1, 2002, 75% for reports due on or after 3-14 January 1, 2002 and before January 1, 2003, and 100% for reports 3-15 due on or after January 1, 2003. 3-16 Sec. 171.706. CARRYOVER. A corporation may carry any unused 3-17 credit forward for not more than 5 consecutive privilege periods. 3-18 SECTION 2. Subchapter H, Chapter 151, Tax Code, is amended 3-19 by adding Section 151.3181 to read as follows: 3-20 Sec. 151.3181. PROPERTY USED IN RESEARCH AND DEVELOPMENT. 3-21 (a) Subject to the limitations in subsections (b) and (d), there 3-22 are exempted from the taxes imposed by this chapter machinery, 3-23 equipment, replacements parts, computers, and software that are 3-24 used: 3-25 (1) in the research or development of an invention, 3-26 product, process, or technology by a person that is primarily 3-27 engaged in the manufacturing, processing, or fabrication of 4-1 tangible personal property for ultimate sale; or 4-2 (2) in the performance of a scientific or technical 4-3 service for a person described by Subdivision (1). 4-4 (b) This section does not apply to equipment, replacement 4-5 parts, computers, or software used in: 4-6 (1) sales or distribution activities; or 4-7 (2) transportation activities. 4-8 (c) In this section, "manufacturing" includes: 4-9 (1) each operation beginning with the first stage in 4-10 the production of tangible personal property and ending with the 4-11 completion of tangible personal property having the physical 4-12 properties, including any packaging, that it has when transferred 4-13 by the manufacturer to another; 4-14 (2) preparatory activities to ready raw material or 4-15 inventory for manufacturing, including gathering, sorting, testing, 4-16 and warehousing; and 4-17 (3) activities of the manufacturer to maintain the 4-18 life of tangible personal property or prevent its deterioration, 4-19 including storage. 4-20 (d) The exemptions shall apply to 25% of the sales price of 4-21 property purchased for research and development on or after October 4-22 1, 1999 and before January 1, 2001, 50% of the sales price for 4-23 property purchased on or after January 1, 2001 and before January 4-24 1, 2002, 75% of the sales price for property purchased on or after 4-25 January 1, 2002 and before January 1, 2003, and 100% of the sales 4-26 price for property purchased on or after January 1, 2003. 4-27 SECTION 3. (a) Except as provided by Subsection (b) of this 5-1 section, Section 1 of this Act takes effect October 1, 1999, and 5-2 applies only to a report originally due on or after that date and 5-3 an investment made on or after that date. 5-4 (b) The manufacturing investment credit, as added by Section 5-5 171.703, Tax Code, as added by this Act, applies only to a report 5-6 originally due on or after January 1, 2001, without regard to 5-7 whether an investment was made before, on, or after that date. 5-8 (c) Section 2 of this Act takes effect October 1, 1999. 5-9 (d) The change in law made by Section 2 of this Act does not 5-10 affect taxes imposed before October 1, 1999, and the law in effect 5-11 before that date is continued in effect for purposes of the 5-12 liability and for collection of those taxes. 5-13 SECTION 4. The importance of this legislation and the 5-14 crowded condition of the calendars in both houses create an 5-15 emergency and an imperative public necessity that the 5-16 constitutional rule requiring bills to be read on three several 5-17 days in each house be suspended, and this rule is hereby suspended.