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.