LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 76th Regular Session
May 5, 1999
TO: Honorable Rene Oliveira, Chair, House Committee on Ways &
Means
FROM: John Keel, Director, Legislative Budget Board
IN RE: SB5 by Sibley (relating to the authorization of certain
franchise tax incentives promoting economic development),
As Engrossed
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* Estimated Two-year Net Impact to General Revenue Related Fundsfor *
* SB5, As Engrossed: negative impact of $(142,724,000) through the *
* biennium ending August 31, 2001. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
**************************************************************************
General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2000 $0 *
* 2001 (142,724,000) *
* 2002 (168,582,000) *
* 2003 (179,255,000) *
* 2004 (190,789,000) *
****************************************************
All Funds, Five-Year Impact:
*****************************************************
* Fiscal Year Probable Revenue Gain/(Loss) from *
* General Revenue Fund *
* 0001 *
* 2000 $0 *
* 2001 (142,724,000) *
* 2002 (168,582,000) *
* 2003 (179,255,000) *
* 2004 (190,789,000) *
*****************************************************
Fiscal Analysis
The bill would create three franchise tax credits: a research and
development credit, a job creation credit, and an investment credit.
The job creation and investment credits would be available for job
creation or investment only in certain counties defined as a "strategic
investment area," and certain authorized sub-county areas. Counties
qualified for inclusion in the strategic area would include those with an
unemployment rate greater than the state average and a per-capita income
of less than the state average. Authorized sub-county areas would
consist of current federally-designated urban enterprise communities and
urban enhanced supplemental enterprise communities. The job creation and
investment credits would be available to manufacturing firms engaged in
processing agricultural goods in a county with a population of less than
250,000. The job creation and investment credits would also be available
to firms engaged in qualified industries: manufacturing, warehousing,
wholesale distribution, computer services, and laboratory research.
The research and development (R&D) credit would be available for
qualified research performed throughout Texas. The credit would be
doubled for R&D activities in a county designated as "strategic." The
R&D credit would be available to all firms engaged in an activity
qualifying as research for the federal R&D credit.
The R&D credit would be mutually exclusive with the job credit in the
year that the job was created. The investment credit would be mutually
exclusive with the enterprise zone deduction in Tax Code Section 171.1015
with respect to an investment made. The credit would be a four percent
incremental credit on research conducted in Texas based on federal R&D
credit guidelines. The credit would be limited to 25 percent of the
firm's franchise tax liability. The job credit would be equal to 25
percent of the wages paid for new jobs created, limited to 50 percent of
the firm's tax. The investment credit would equal 7.5 percent of the
firm's capital investment, limited to 50 percent of the firm's tax. The
sum of the three credits would be limited to the total amount of the
firm's tax liability.
The job creation and investment credits could be taken in five equal
installments over five tax report periods. The R&D credit could be taken
in the year earned. The job and investment credits would have a
five-year carryover. The R&D credit would have a 20-year carryover
period.
The bill would require the Comptroller to gather and report to the
Legislature information on the three credits, including the geographic
location within Texas of the research performed, the jobs created, and
the investment made. The Comptroller also would be required to report on
the economic and tax impact of the credits. The report would be due
before the beginning of each regular legislative session.
The bill would take effect January 1, 2000. The credit would be
effective for research expenditures made, jobs created, and investments
made on or after that date.
The credits would expire December 31, 2009.
Methodology
This note is based on a Comptroller of Public Accounts analysis using the
Comptroller's tax files and data produced by the Texas Workforce
Commission, the U.S. Bureaus of the Census and Economic Analysis, and the
Internal Revenue Service.
The fiscal impact for fiscal year 2001 reflects a partial year of credit
eligibility. The bill would have no impact in fiscal year 2000.
Local Government Impact
The bill would produce local property and sales tax revenue growth to the
degree that job creation and business development were induced by the
respective franchise tax credits granted.
Source Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK, BB, BR, CT