LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 76th Regular Session
April 14, 1999
TO: Honorable Bill Ratliff, Chair, Senate Committee on Finance
FROM: John Keel, Director, Legislative Budget Board
IN RE: SB5 by Sibley (relating to the authorization of certain
franchise tax incentives promoting economic development),
Committee Report 1st House, Substituted
**************************************************************************
* Estimated Two-Year Net Impact to General Revenue Related Fundsfor *
* SB5, Committee Report 1st House, Substituted: negative impact of *
* $(131,857,000) through the biennium ending August 31, 2001. *
**************************************************************************
General Revenue-Related Funds, Five-Year Net Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2000 $0 *
* 2001 (131,857,000) *
* 2002 (150,507,000) *
* 2003 (160,035,000) *
* 2004 (170,332,000) *
****************************************************
All Funds, Five-Year Impact:
*****************************************************
* Fiscal Year Probable Revenue Gain/(Loss) from *
* General Revenue Fund *
* 0001 *
* 2000 $0 *
* 2001 (131,857,000) *
* 2002 (150,507,000) *
* 2003 (160,035,000) *
* 2004 (170,332,000) *
*****************************************************
Fiscal Analysis
This 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 in counties,
known collectively as a "strategic investment area." Counties included
in the strategic area would be those with an unemployment rate greater
than the state average and a per-capita income of less than the state
average.
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 job creation and investment credits would be available to firms
engaged in qualified industries. 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 R&D credit would be a 4 percent incremental credit on research
conducted in Texas based on federal R&D credit guidelines and 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 would 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
distribution of research performed, jobs created, and investment made.
The Comptroller also would be required to report on the economic and tax
impact of the credits.
Credits would be effective for research expenditures made, jobs created
and investments made on or after the January 1, 2000 effective date.
The credits would expire December 31, 2009.
Methodology
Information on unemployment rates by county was supplied by the Texas
Workforce Commission. Information on county per-capita incomes was
supplied by the U.S. Bureau of Economic Analysis. Based on current data,
the strategic investment area would include 92 counties, primarily along
the Rio Grande border and along the Gulf Coast.
Information on job creation and wages was supplied by the Texas Workforce
Commission. Industry-specific investment data were supplied by the U.S.
Census Bureau and the U.S. Bureau of Economic Analysis.
Information on R&D activity was provided by the Internal Revenue Service.
Tax liability limits were obtained from the Comptroller's tax files.
The fiscal impact for fiscal 2001 reflects a partial year of credit
eligibility. The bill would have no impact in fiscal 2000.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies: 304 Comptroller Of Pub Accts
LBB Staff: JK, BB, BR, CT