LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session February 15, 1999 TO: Honorable Bill Ratliff, Chair, Senate Committee on Finance FROM: John Keel, Director, Legislative Budget Board IN RE: SB5 by Sibley (relating to a franchise tax refund or credit for certain research and development activities), As Introduced ************************************************************************** * Two-year Net Impact to General Revenue Related Funds for SB5, As * * Introduced: negative impact of $(3,278,000) 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 $(1,583,000) * * 2001 (1,695,000) * * 2002 (1,796,000) * * 2003 (1,910,000) * * 2004 (2,032,000) * **************************************************** All Funds, Five-Year Impact: ***************************************************** * Fiscal Year Probable Revenue Gain/(Loss) from * * General Revenue Fund * * 0001 * * 2000 $(1,583,000) * * 2001 (1,695,000) * * 2002 (1,796,000) * * 2003 (1,910,000) * * 2004 (2,032,000) * ***************************************************** Fiscal Analysis The bill would allow franchise tax refunds for certain research spending done by Texas corporations. Refunds would be capped at $125 million annually. Unless limited by the refund cap, a refund would be equal to 5 percent of the quotient of a corporation's qualified research expenditures divided by the firm's base research amount, plus 5 percent of the firm's expenditures for basic research conducted by universities and research laboratories. Refunds could not exceed 25 percent of the franchise tax otherwise due from a corporation. Federal tax code definitions would be used to compute the Texas credit; these definitions limit the credit to basic, scientific, pre-production research. Also, the bill would restrict refunds to research conducted in Texas. Should the total amount of refunds claimed in a tax year exceed the $125 million cap, the Comptroller would prorate the refunds; if refund claims do not exceed the cap, the Comptroller would reimburse the actual credits claimed. There would be no significant administrative cost to the Comptroller's Office. Methodology This estimate is based on a Comptroller's Office analysis of federal corporate and Texas franchise tax data. Local Government Impact No fiscal implication to units of local government is anticipated. Source Agencies: LBB Staff: JK, BB, BR, CT