By Greenberg H.B. No. 3743 Line and page numbers may not match official copy. Bill not drafted by TLC or Senate E&E. A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to tax credits, refunds, and exemptions. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Subchapter C, Chapter 171, Tax Code, is amended 1-5 by adding Section 171.114 to read as follows: 1-6 Sec. 171.114. CREDIT ON NET TAXABLE EARNED SURPLUS FOR 1-7 RESEARCH AND DEVELOPMENT ACTIVITIES. (a) A corporation is 1-8 entitled to a credit against the tax due under this chapter on net 1-9 taxable earned surplus as provided by this section. 1-10 (b) Subject to Subsections (c) and (d), the credit for any 1-11 privilege period equals the sum of five percent of: 1-12 (1) the qualified research expenses for this state for 1-13 that period; and 1-14 (2) the basic research payments determined for this 1-15 state for that period. 1-16 (c) The credit may not exceed: 1-17 (1) 25 percent of the amount of net franchise tax due 1-18 for the privilege period after any other applicable tax credits; or 1-19 (2) in combination with the credit under Subchapter Q, 1-20 50 percent of the amount of net franchise tax due for the privilege 1-21 period after any other applicable tax credits other than the credit 2-1 under Subchapter Q. 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, any amount used to calculate the credit 2-10 shall be multiplied by a fraction the numerator of which is the 2-11 number of days in the corporation's accounting year that are also 2-12 in the privilege period and the denominator of which is the number 2-13 of days in the privilege period. 2-14 (g) The comptroller shall adopt rules necessary to implement 2-15 this section. 2-16 (h) This section applies only to an expenditure by a 2-17 corporation made on or before December 31, 2017. 2-18 (i) In this section, "basic research payment" and "qualified 2-19 research expense" have the meanings assigned by Section 41, 2-20 Internal Revenue Code. 2-21 SECTION 2. Chapter 171, Tax Code, is amended by adding 2-22 Subchapters P, and Q to read as follows: 2-23 SUBCHAPTER P. WORKFORCE DEVELOPMENT TAX CREDIT 2-24 Sec. 171.751. ENTITLEMENT TO CREDIT. A corporation is 2-25 entitled to a credit in the amount and under the conditions and 3-1 limitations provided by this subchapter against the tax imposed 3-2 under this chapter. 3-3 Sec. 171.752. QUALIFICATION. A corporation qualifies for a 3-4 credit under this subchapter for each employee: 3-5 (1) originally hired on or after January 1, 2000; 3-6 (2) who, at the time of being hired, is enrolled in a 3-7 technical preparatory career pathway course of study at an 3-8 accredited high school; and 3-9 (3) who is employed as an intern with work assignments 3-10 related to the course of study. 3-11 Sec. 171.753. AMOUNT; LIMITATIONS. (a) The amount of the 3-12 credit is 50 percent of the wages paid by the corporation for each 3-13 qualified employee. 3-14 (b) The credit claimed for each privilege period may not 3-15 exceed $1,500 for each individual employed. 3-16 Sec. 171.754. APPLICATION FOR CREDIT. (a) A corporation 3-17 must apply for a credit under this subchapter on or with the tax 3-18 report for the period for which the credit is claimed. 3-19 (b) The comptroller shall promulgate a form for the 3-20 application for the credit. A corporation must use this form in 3-21 applying for the credit. 3-22 Sec. 171.755. PERIOD FOR WHICH CREDIT MAY BE CLAIMED. A 3-23 corporation may claim a credit under this subchapter for wages paid 3-24 during an accounting period only against the tax owed for the 3-25 corresponding privilege period. 4-1 Sec. 171.756. RULES. The comptroller shall adopt rules 4-2 necessary to implement this subchapter. 4-3 SUBCHAPTER Q. CREDIT FOR EDUCATION INVESTMENT 4-4 IN RESEARCH AND DEVELOPMENT 4-5 Sec. 171.781. ENTITLEMENT. A corporation is entitled to a 4-6 credit in the amount and under the conditions and limitations 4-7 provided by this subchapter against the tax imposed under this 4-8 chapter. 4-9 Sec. 171.782. EDUCATION INVESTMENT CREDIT. (a) A 4-10 corporation is entitled to a credit for fair market value of a 4-11 contribution for research and development purposes, including 4-12 money, service, and equipment, to an education organization in this 4-13 state that normally: 4-14 (1) maintains a regular facility and curriculum; and 4-15 (2) has a regularly enrolled body of students in 4-16 attendance. 4-17 (b) The amount of the credit may not exceed: 4-18 (1) 25 percent of the amount contributed under 4-19 Subsection (a) for the privilege period in which the expenses or 4-20 payments are made; or 4-21 (2) in combination with the credit under Section 4-22 171.114, 50 percent of the amount of net franchise tax due for the 4-23 privilege period after any other applicable tax credits other than 4-24 the credit under Section 171.114. 4-25 Sec. 171.783. ACCOUNTING. If a corporation's accounting 5-1 year does not correspond to the privilege period, any amount used 5-2 to calculate the credit shall be multiplied by a fraction the 5-3 numerator of which is the number of days in the corporation's 5-4 accounting year that are also in the privilege period and the 5-5 denominator of which is the number of days in the privilege period. 5-6 Sec. 171.784. CARRYOVER. A corporation may carry any unused 5-7 credit forward for not more than four consecutive privilege 5-8 periods. 5-9 SECTION 3. Subchapter H, Chapter 151, Tax Code, is amended 5-10 by adding Section 151.3181 to read as follows: 5-11 Sec. 151.3181. EQUIPMENT USED IN RESEARCH OR DEVELOPMENT. 5-12 (a) There are exempted from the taxes imposed by this chapter 5-13 machinery, equipment, or replacement parts that are used directly 5-14 in the research or development of inventions, products, processes, 5-15 or technology by a person that is: 5-16 (1) subject to the franchise tax imposed under Chapter 5-17 171; and 5-18 (2) primarily engaged in: 5-19 (A) the manufacturing, processing, or 5-20 fabrication of tangible personal property for ultimate sale; or 5-21 (B) the performance of scientific or technical 5-22 services for a person described by Paragraph (A). 5-23 (b) The exemption does not include: 5-24 (1) office equipment or supplies; or 5-25 (2) equipment or supplies used in sales or 6-1 distribution activities or in transportation activities. 6-2 (c) In this section, "manufacturing" has the meaning 6-3 assigned by Section 151.318. 6-4 SECTION 4. (a) Sections 1 and 2 of this Act take effect 6-5 January 1, 2000, and apply only to a report originally due on or 6-6 after that date. 6-7 (b) Section 3 of this Act takes effect October 1, 1999. 6-8 (c) The change in law made by Section 3 of this Act does not 6-9 affect taxes imposed before October 1, 1999, and the law in effect 6-10 before that date is continued in effect for purposes of the 6-11 liability for and collection of those taxes. 6-12 SECTION 5. The importance of this legislation and the 6-13 crowded condition of the calendars in both houses create an 6-14 emergency and an imperative public necessity that the 6-15 constitutional rule requiring bills to be read on three several 6-16 days in each house be suspended, and this rule is hereby suspended.