By: Sibley, et al. S.B. No. 5
A BILL TO BE ENTITLED
AN ACT
1-1 relating to the authorization of certain franchise tax incentives
1-2 promoting economic development.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 171, Tax Code, is amended by adding
1-5 Subchapter O to read as follows:
1-6 SUBCHAPTER O. TAX CREDIT FOR CERTAIN RESEARCH AND
1-7 DEVELOPMENT ACTIVITIES
1-8 Sec. 171.721. DEFINITIONS. In this subchapter:
1-9 (1) "Base amount," "basic research payment," and
1-10 "qualified research expense" have the meanings assigned those terms
1-11 by Section 41, Internal Revenue Code, except that all such payments
1-12 and expenses must be for research conducted within this state.
1-13 (2) "Strategic investment area" means:
1-14 (A) a county within this state with above state
1-15 average unemployment and below state average per capita income; or
1-16 (B) an area that, on or before January 1, 1999,
1-17 is a federally designated urban enterprise community or an urban
1-18 enhanced supplemental enterprise community.
1-19 Sec. 171.722. ELIGIBILITY. (a) A corporation is eligible
1-20 for a credit against the tax imposed under this chapter in the
1-21 amount and under the conditions and limitations provided by this
1-22 subchapter.
1-23 (b) A corporation may claim a credit under Section
1-24 171.723(b) or take a carryforward credit without regard to whether
2-1 the strategic investment area in which it made qualified research
2-2 expenses and basic research payments subsequently loses its
2-3 designation as a strategic investment area.
2-4 Sec. 171.723. CALCULATION OF CREDIT. (a) The credit for
2-5 any report equals four percent of the sum of:
2-6 (1) the excess of qualified research expenses incurred
2-7 in this state during the period upon which the tax is based over
2-8 the base amount for this state; and
2-9 (2) the basic research payments determined under
2-10 Section 41(e)(1)(A), Internal Revenue Code, for this state during
2-11 the period upon which the tax is based.
2-12 (b) In computing the credit under Subsection (a), a
2-13 corporation may multiply by two the amount of any qualified
2-14 research expenses and basic research payments made in a strategic
2-15 investment area as determined by the comptroller under Section
2-16 171.726.
2-17 (c) The burden of establishing entitlement to and the value
2-18 of the credit is on the corporation.
2-19 Sec. 171.724. LIMITATIONS. (a) The total credit claimed
2-20 under this subchapter for a report, including the amount of any
2-21 carryforward credit under Section 171.725, may not exceed 25
2-22 percent of the amount of franchise tax due for the report before
2-23 any other applicable tax credits.
2-24 (b) The total credit claimed under this subchapter and
2-25 Subchapters P and Q for a report, including the amount of any
2-26 carryforward credits, may not exceed the amount of franchise tax
3-1 due for the report after any other applicable credits.
3-2 (c) A corporation that establishes its eligibility for a
3-3 credit under this subchapter is not eligible to establish a credit
3-4 under Subchapter P.
3-5 Sec. 171.725. CARRYFORWARD. If a corporation is eligible
3-6 for a credit that exceeds the limitation under Section 171.724(a)
3-7 or (b), the corporation may carry the unused credit forward for not
3-8 more than 20 consecutive reports. A credit carryforward from a
3-9 previous report is considered to be utilized before the current
3-10 year credit.
3-11 Sec. 171.726. DETERMINATION OF STRATEGIC INVESTMENT AREAS.
3-12 The comptroller shall determine strategic investment areas on an
3-13 annual basis using the most current available data and shall
3-14 publish a list and map of strategic investment areas by September 1
3-15 of each year.
3-16 Sec. 171.727. BIENNIAL REPORT TO LEGISLATURE BY COMPTROLLER.
3-17 (a) Before the beginning of each regular session of the
3-18 legislature, the comptroller shall submit to the members of the
3-19 legislature a report that states:
3-20 (1) the total amount of expenses and payments incurred
3-21 by corporations that claim a credit under Section 171.723;
3-22 (2) the total amount of credits applied against the
3-23 tax under this chapter and the amount of unused credits including:
3-24 (A) the total amount of franchise tax due by
3-25 corporations claiming a credit under this subchapter before and
3-26 after the application of the credit;
4-1 (B) the average percentage reduction in
4-2 franchise tax due by corporations claiming a credit under this
4-3 subchapter;
4-4 (C) the percentage of tax credits that were
4-5 awarded to corporations with fewer than 100 employees; and
4-6 (D) the two-digit standard industrial
4-7 classification of corporations claiming a credit under this
4-8 subchapter;
4-9 (3) the geographical distribution of expenses and
4-10 payments giving rise to a credit authorized by this subchapter;
4-11 (4) the impact of the credit provided by this
4-12 subchapter on the amount of research and development performed in
4-13 this state and employment in research and development in this
4-14 state; and
4-15 (5) the impact of the credit provided under this
4-16 subchapter on employment, capital investment, and personal income
4-17 in this state and on state tax revenues.
4-18 (b) The final report issued prior to the expiration of this
4-19 subchapter shall include historical information on the credit
4-20 authorized under this subchapter.
4-21 (c) The comptroller may not include in the report
4-22 information that is confidential by law.
4-23 (d) For purposes of this section, the comptroller may
4-24 require a corporation that claims a credit under this subchapter to
4-25 submit information, on a form provided by the comptroller on the
4-26 location of the corporation's research expenses and payments in
5-1 this state and any other information necessary to complete the
5-2 report required under this section.
5-3 Sec. 171.728. COMPTROLLER POWERS AND DUTIES. The
5-4 comptroller shall adopt rules and forms necessary to implement this
5-5 subchapter.
5-6 Sec. 171.729. EXPIRATION. (a) This subchapter expires
5-7 December 31, 2009.
5-8 (b) The expiration of this subchapter does not affect the
5-9 carryforward of a credit under Section 171.725 for those credits to
5-10 which a corporation is eligible before the date this subchapter
5-11 expires.
5-12 SECTION 2. Chapter 171, Tax Code, is amended by adding
5-13 Subchapter P to read as follows:
5-14 SUBCHAPTER P. TAX CREDITS FOR CERTAIN JOB CREATION ACTIVITIES
5-15 Sec. 171.751. DEFINITIONS. In this subchapter:
5-16 (1) "Agricultural processing" means an establishment
5-17 primarily engaged in activities described in categories 2011-2099,
5-18 2211, 2231, or 3111-3199 of the 1987 Standard Industrial
5-19 Classification Manual published by the federal Office of Management
5-20 and Budget.
5-21 (2) "Central administrative offices" means an
5-22 establishment primarily engaged in performing management or support
5-23 services for other establishments of the same enterprise. An
5-24 enterprise consists of all establishments having more than 50
5-25 percent common direct or indirect ownership.
5-26 (3) "County average weekly wage" means the average
6-1 weekly wage for all covered employment in the county as computed by
6-2 the Texas Workforce Commission.
6-3 (4) "Data processing" means an establishment primarily
6-4 engaged in activities described in categories 7371-7379 of the 1987
6-5 Standard Industrial Classification Manual published by the federal
6-6 Office of Management and Budget.
6-7 (5) "Distribution" means an establishment primarily
6-8 engaged in activities described in categories 5012-5199 of the 1987
6-9 Standard Industrial Classification Manual published by the federal
6-10 Office of Management and Budget.
6-11 (6) "Group health benefit plan" means:
6-12 (A) a health plan provided by a health
6-13 maintenance organization established under the Texas Health
6-14 Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance
6-15 Code);
6-16 (B) a health benefit plan approved by the
6-17 commissioner of insurance; or
6-18 (C) a self-funded or self-insured employee
6-19 welfare benefit plan that provides health benefits and is
6-20 established in accordance with the Employee Retirement Income
6-21 Security Act of 1974 (29 U.S.C. Section 1001 et seq.), as amended.
6-22 (7) "Manufacturing" means an establishment primarily
6-23 engaged in activities described in categories 2011-3999 of the 1987
6-24 Standard Industrial Classification Manual published by the federal
6-25 Office of Management and Budget.
6-26 (8) "Qualified business" means an establishment
7-1 primarily engaged in agricultural processing, central
7-2 administrative offices, distribution, data processing,
7-3 manufacturing, research and development, or warehousing.
7-4 (9) "Qualifying job" means a new permanent full-time
7-5 job that:
7-6 (A) is located in:
7-7 (i) a strategic investment area; or
7-8 (ii) a county with a population of less
7-9 than 250,000, if the job is created by a business primarily engaged
7-10 in agricultural processing;
7-11 (B) requires at least 1,600 hours of work a
7-12 year;
7-13 (C) pays at least 110 percent of the county
7-14 average weekly wage for the county where the job is located;
7-15 (D) is covered by a group health benefit plan
7-16 for which the business pays at least 80 percent of the premiums or
7-17 other charges assessed under the plan for the employee;
7-18 (E) is not transferred from one area in this
7-19 state to another area in this state; and
7-20 (F) is not created to replace a previous
7-21 employee.
7-22 (10) "Research and development" means an establishment
7-23 primarily engaged in activities described in category 8731 of the
7-24 1987 Standard Industrial Classification Manual published by the
7-25 federal Office of Management and Budget.
7-26 (11) "Strategic investment area" has the meaning
8-1 assigned that term by Section 171.721.
8-2 (12) "Warehousing" means an establishment primarily
8-3 engaged in activities described in categories 4221-4226 of the 1987
8-4 Standard Industrial Classification Manual published by the federal
8-5 Office of Management and Budget.
8-6 Sec. 171.752. ELIGIBILITY. (a) A corporation is eligible
8-7 for a credit against the tax imposed under this chapter if the
8-8 corporation:
8-9 (1) is a qualified business as defined in Section
8-10 171.751;
8-11 (2) creates a minimum of 10 qualifying jobs; and
8-12 (3) pays an average weekly wage, for the year in which
8-13 credits are claimed, of at least 110 percent of the county average
8-14 weekly wage for the county where the qualifying jobs are located.
8-15 (b) A corporation may claim a credit or take a carryforward
8-16 credit without regard to whether the strategic investment area in
8-17 which it created the qualifying jobs subsequently loses its
8-18 designation as a strategic investment area, if applicable.
8-19 Sec. 171.753. CALCULATION OF CREDIT. A corporation may
8-20 establish a credit equal to 25 percent of the total wages and
8-21 salaries paid by the corporation for qualifying jobs during the
8-22 period upon which the tax is based.
8-23 Sec. 171.754. LENGTH OF CREDIT. The credit established
8-24 shall be claimed in five equal installments of one-fifth the credit
8-25 amount over the five consecutive reports beginning with the report
8-26 based upon the period during which the qualifying jobs were
9-1 created.
9-2 Sec. 171.755. LIMITATIONS. (a) The total credit claimed
9-3 under this subchapter for a report, including the amount of any
9-4 carryforward credit under Section 171.756, may not exceed 50
9-5 percent of the amount of franchise tax due for the report before
9-6 any other applicable tax credits.
9-7 (b) The total credit claimed under this subchapter and
9-8 Subchapters O and Q for a report, including the amount of any
9-9 carryforward credits, may not exceed the amount of franchise tax
9-10 due for the report after any other applicable credits.
9-11 (c) A corporation that establishes its eligibility for a
9-12 credit under this subchapter is not eligible to establish a credit
9-13 under Subchapter O.
9-14 Sec. 171.756. CARRYFORWARD. (a) If a corporation is
9-15 eligible for a credit from an installment that exceeds the
9-16 limitations under Section 171.755(a) or (b), the corporation may
9-17 carry the unused credit forward for not more than five consecutive
9-18 reports.
9-19 (b) A carryforward is considered the remaining portion of an
9-20 installment that cannot be claimed in the current year because of
9-21 the tax limitation under Section 171.755. A carryforward is added
9-22 to the next year's installment of the credit in determining the tax
9-23 limitation for that year. A credit carryforward from a previous
9-24 report is considered to be utilized before the current year
9-25 installment.
9-26 Sec. 171.757. CERTIFICATION OF ELIGIBILITY. (a) For the
10-1 initial and each succeeding report in which a credit is claimed
10-2 under this subchapter, the corporation shall file with its report,
10-3 on a form provided by the comptroller, information that
10-4 sufficiently demonstrates that the corporation is eligible for the
10-5 credit and is in compliance with Section 171.752.
10-6 (b) The burden of establishing entitlement to and the value
10-7 of the credit is on the corporation.
10-8 (c) If, in one of the five years in which the installment of
10-9 a credit accrues, the number of the corporation's full-time
10-10 employees falls below the number of full-time employees the
10-11 corporation had in the year in which the corporation qualified for
10-12 the credit, the credit expires and the corporation may not take any
10-13 remaining installment of the credit.
10-14 (d) Notwithstanding Subsection (c), the corporation may,
10-15 however, take the portion of an installment that accrued in a
10-16 previous year and was carried forward to the extent permitted under
10-17 Section 171.756.
10-18 Sec. 171.758. ASSIGNMENT PROHIBITED. A corporation may not
10-19 convey, assign, or transfer the credit allowed under this
10-20 subchapter to another entity unless all of the assets of the
10-21 corporation are conveyed, assigned, or transferred in the same
10-22 transaction.
10-23 Sec. 171.759. BIENNIAL REPORT TO LEGISLATURE BY COMPTROLLER.
10-24 (a) Before the beginning of each regular session of the
10-25 legislature, the comptroller shall submit to the members of the
10-26 legislature a report that states:
11-1 (1) the total number of jobs created by corporations
11-2 that claim a credit under this subchapter and the average and
11-3 median annual wage of those jobs;
11-4 (2) the total amount of credits applied against the
11-5 tax under this chapter and the amount of unused credits including:
11-6 (A) the total amount of franchise tax due by
11-7 corporations claiming a credit under this subchapter before and
11-8 after the application of the credit;
11-9 (B) the average percentage reduction in
11-10 franchise tax due by corporations claiming a credit under this
11-11 subchapter; and
11-12 (C) the percentage of tax credits that were
11-13 awarded to corporations with fewer than 100 employees;
11-14 (3) a breakdown of the two-digit standard industrial
11-15 classification of businesses claiming a credit under this
11-16 subchapter;
11-17 (4) the geographical distribution of the credits
11-18 claimed under this subchapter; and
11-19 (5) the impact of the credit provided under this
11-20 subchapter on employment, personal income, and capital investment
11-21 in this state and on state tax revenues.
11-22 (b) The final report issued prior to the expiration of this
11-23 subchapter shall include historical information on the credit
11-24 authorized under this subchapter.
11-25 (c) The comptroller may not include in the report
11-26 information that is confidential by law.
12-1 (d) For purposes of this section, the comptroller may
12-2 require a corporation that claims a credit under this subchapter to
12-3 submit information, on a form provided by the comptroller, on the
12-4 location of the corporation's job creation in this state and any
12-5 other information necessary to complete the report required under
12-6 this section.
12-7 Sec. 171.760. COMPTROLLER POWERS AND DUTIES. The
12-8 comptroller shall adopt rules and forms necessary to implement this
12-9 subchapter.
12-10 Sec. 171.761. EXPIRATION. (a) This subchapter expires
12-11 December 31, 2009.
12-12 (b) The expiration of this subchapter does not affect the
12-13 carryforward of a credit under Section 171.756 or those credits for
12-14 which a corporation is eligible before the date this subchapter
12-15 expires.
12-16 SECTION 3. Chapter 171, Tax Code, is amended by adding
12-17 Subchapter Q to read as follows:
12-18 SUBCHAPTER Q. TAX CREDITS FOR CERTAIN CAPITAL INVESTMENTS
12-19 Sec. 171.801. DEFINITIONS. In this subchapter:
12-20 (1) "Agricultural processing," "central administrative
12-21 offices," "county average weekly wage," "distribution," "data
12-22 processing," "manufacturing," "qualified business," "research and
12-23 development," and "warehousing" have the meanings assigned those
12-24 terms by Section 171.751.
12-25 (2) "Capitalized lease" means a transaction that is
12-26 classified as a purchase for federal income tax purposes even
13-1 though it is denominated as a "lease."
13-2 (3) "Qualified capital investment" means tangible
13-3 personal property first placed in service in a strategic investment
13-4 area, or first placed in service in a county with a population of
13-5 less than 250,000 by a corporation primarily engaged in
13-6 agricultural processing, and that is described in Section 1245(a),
13-7 Internal Revenue Code, such as engines, machinery, tools, and
13-8 implements used in a trade or business or held for investment and
13-9 subject to an allowance for depreciation, cost recovery under the
13-10 accelerated cost recovery system, or amortization. The term does
13-11 not include real property or buildings and their structural
13-12 components. Property that is leased under a capitalized lease is
13-13 considered a "qualified capital investment," but property that is
13-14 leased under an operating lease is not considered a "qualified
13-15 capital investment." Property expensed under Section 179, Internal
13-16 Revenue Code, is not considered a "qualified capital investment."
13-17 (4) "Strategic investment area" has the meaning
13-18 assigned that term by Section 171.721.
13-19 Sec. 171.802. ELIGIBILITY. (a) A corporation is eligible
13-20 for a credit against the tax imposed under this chapter in the
13-21 amount and under the conditions and limitations provided by this
13-22 subchapter.
13-23 (b) To qualify for the credit authorized under this
13-24 subchapter, a qualified business must:
13-25 (1) make a minimum $500,000 qualified capital
13-26 investment; and
14-1 (2) pay an average weekly wage, at the location with
14-2 respect to which the credit is claimed, which is at least 110
14-3 percent of the county average weekly wage.
14-4 (c) A corporation may claim a credit or take a carryforward
14-5 credit without regard to whether the strategic investment area in
14-6 which it made the qualified capital investment subsequently loses
14-7 its designation as a strategic investment area, if applicable.
14-8 Sec. 171.803. CALCULATION OF CREDIT. A corporation may
14-9 establish a credit equal to 7.5 percent of the qualified capital
14-10 investment during the period upon which the tax is based.
14-11 Sec. 171.804. LENGTH OF CREDIT. The credit established
14-12 shall be claimed in five equal installments of one-fifth the credit
14-13 amount over the five consecutive reports beginning with the report
14-14 based upon the period during which the qualified capital investment
14-15 was made.
14-16 Sec. 171.805. LIMITATIONS. (a) The total credit claimed
14-17 under this subchapter for a report, including the amount of any
14-18 carryforward credit under Section 171.806, may not exceed 50
14-19 percent of the amount of franchise tax due for the report before
14-20 any other applicable tax credits.
14-21 (b) The total credit claimed under this subchapter and
14-22 Subchapters O and P for a report, including the amount of any
14-23 carryforward credits, may not exceed the amount of franchise tax
14-24 due for the report after any other applicable tax credits.
14-25 (c) A corporation that establishes its eligibility for a
14-26 credit under this subchapter is not eligible to claim a franchise
15-1 tax reduction authorized under Section 171.1015.
15-2 Sec. 171.806. CARRYFORWARD. (a) If a corporation is
15-3 eligible for a credit from an installment that exceeds the
15-4 limitation under Section 171.805(a) or (b), the corporation may
15-5 carry the unused credit forward for not more than five consecutive
15-6 reports.
15-7 (b) A carryforward is considered the remaining portion of an
15-8 installment that cannot be claimed in the current year because of
15-9 the tax limitation under Section 171.805. A carryforward is added
15-10 to the next year's installment of the credit in determining the tax
15-11 limitation for that year. A credit carryforward from a previous
15-12 report is considered to be utilized before the current year
15-13 installment.
15-14 Sec. 171.807. CERTIFICATION OF ELIGIBILITY. (a) For the
15-15 initial and each succeeding report in which a credit is claimed
15-16 under this subchapter, the corporation shall file with its report,
15-17 on a form provided by the comptroller, information that
15-18 sufficiently demonstrates that the corporation is eligible for the
15-19 credit and is in compliance with Section 171.802.
15-20 (b) The burden of establishing entitlement to and the value
15-21 of the credit is on the qualified business.
15-22 (c) A credit expires under this subchapter and the
15-23 corporation may not take any remaining installment of the credit if
15-24 in one of the five years in which the installment of a credit
15-25 accrues, the qualified business:
15-26 (1) disposes of the qualified capital investment;
16-1 (2) takes the qualified capital investment out of
16-2 service;
16-3 (3) moves the qualified capital investment out of this
16-4 state; or
16-5 (4) fails to pay an average weekly wage as required by
16-6 Section 171.802.
16-7 (d) Notwithstanding Subsection (c), the corporation may take
16-8 the portion of an installment that accrued in a previous year and
16-9 was carried forward to the extent permitted under Section 171.806.
16-10 Sec. 171.808. ASSIGNMENT PROHIBITED. A corporation may not
16-11 convey, assign, or transfer the credit allowed under this
16-12 subchapter to another entity unless all of the assets of the
16-13 corporation are conveyed, assigned, or transferred in the same
16-14 transaction.
16-15 Sec. 171.809. BIENNIAL REPORT TO LEGISLATURE BY COMPTROLLER.
16-16 (a) Before the beginning of each regular session of the
16-17 legislature, the comptroller shall submit to the members of the
16-18 legislature a report that states:
16-19 (1) the total amount of qualified capital investments
16-20 made by corporations that claim a credit under this subchapter and
16-21 the average and median wages paid by those corporations;
16-22 (2) the total amount of credits applied against the
16-23 tax under this chapter and the amount of unused credits including:
16-24 (A) the total amount of franchise tax due by
16-25 corporations claiming a credit under this subchapter before and
16-26 after the application of the credit;
17-1 (B) the average percentage reduction in
17-2 franchise tax due by corporations claiming a credit under this
17-3 subchapter;
17-4 (C) the percentage of tax credits that were
17-5 awarded to corporations with fewer than 100 employees; and
17-6 (D) the two-digit standard industrial
17-7 classification of corporations claiming a credit under this
17-8 subchapter;
17-9 (3) the geographical distribution of the qualified
17-10 capital investments upon which tax credit claims are made under
17-11 this subchapter; and
17-12 (4) the impact of the credit provided under this
17-13 subchapter on employment, capital investment, personal income, and
17-14 state tax revenues.
17-15 (b) The final report issued prior to the expiration of this
17-16 subchapter shall include historical information on the credit
17-17 authorized under this subchapter.
17-18 (c) The comptroller may not include in the report
17-19 information that is confidential by law.
17-20 (d) For purposes of this section, the comptroller may
17-21 require a corporation that claims a credit under this subchapter to
17-22 submit information, on a form provided by the comptroller, on the
17-23 location of the corporation's capital investment in this state and
17-24 any other information necessary to complete the report required
17-25 under this section.
17-26 Sec. 171.810. COMPTROLLER POWERS AND DUTIES. The
18-1 comptroller shall adopt rules and forms necessary to implement this
18-2 subchapter.
18-3 Sec. 171.811. EXPIRATION. (a) This subchapter expires
18-4 December 31, 2009.
18-5 (b) The expiration of this subchapter does not affect the
18-6 carryforward of a credit under Section 171.806 or those credits for
18-7 which a corporation is eligible before the date this subchapter
18-8 expires.
18-9 SECTION 4. The comptroller of public accounts of the State
18-10 of Texas may combine the reports required under Subchapters O, P,
18-11 and Q, Chapter 171, Tax Code, as added by this Act, into a single
18-12 report.
18-13 SECTION 5. (a) This Act takes effect January 1, 2000.
18-14 (b) The changes in law made by this Act apply only to a
18-15 report originally due on or after January 1, 2000. A corporation
18-16 may claim a credit under Subchapters O, P, and Q, Chapter 171, Tax
18-17 Code, as added by this Act, only for expenses and payments
18-18 incurred, qualified investments made, or new jobs created, on or
18-19 after January 1, 2000.
18-20 SECTION 6. The importance of this legislation and the
18-21 crowded condition of the calendars in both houses create an
18-22 emergency and an imperative public necessity that the
18-23 constitutional rule requiring bills to be read on three several
18-24 days in each house be suspended, and this rule is hereby suspended.