By Williams                                           H.B. No. 2790
         77R4529 DAK-D                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to franchise tax incentives for corporations conducting
 1-3     certain research and development activities.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1.  Chapter 171, Tax Code, is amended by adding
 1-6     Subchapter S to read as follows:
 1-7       SUBCHAPTER S.  CREDITS AND BUSINESS LOSS CARRYOVERS FOR CERTAIN
 1-8                     RESEARCH AND DEVELOPMENT ACTIVITIES
 1-9           Sec. 171.851.  DEFINITIONS.  In this subchapter:
1-10                 (1)  "Advanced computing technology" means the
1-11     technology used  in designing and developing computing hardware and
1-12     software, including innovations in designing the full spectrum of
1-13     hardware from hand-held calculators to supercomputers, and
1-14     peripheral equipment associated with the hardware.
1-15                 (2)  "Advanced materials technology"  means the
1-16     specialized processing and synthesis technology used to create
1-17     materials with engineered properties, including ceramics, high
1-18     value-added metals, electronic materials, composites, polymers, and
1-19     biomaterials.
1-20                 (3)  "Base amount," "basic research payment," and
1-21     "qualified research expense" have the meanings assigned those terms
1-22     by Section 41, Internal Revenue Code.
1-23                 (4)  "Biotechnology"  means the technology, including
1-24     products, services, and subtechnologies, involving the functioning
 2-1     of biological systems from the macro level to the molecular and
 2-2     subatomic levels.
 2-3                 (5)  "Electronic device technology" means the
 2-4     technology involving:
 2-5                       (A)  microelectronics;
 2-6                       (B)  semiconductors;
 2-7                       (C)  electronic equipment and instrumentation;
 2-8                       (D)  radio frequency, microwave, and millimeter
 2-9     electronics;
2-10                       (E)  optical and optic-electrical devices; and
2-11                       (F)  data and digital communications and imaging
2-12     devices.
2-13                 (6)  "Environmental technology" means the technology
2-14     used:
2-15                       (A)  to assess and prevent threats or damage to
2-16     human health or the environment;
2-17                       (B)  for environmental cleanup; and
2-18                       (C)  to develop alternative energy sources.
2-19                 (7)  "Medical device technology" means the technology
2-20     involving any medical equipment or product that:
2-21                       (A)  is not a pharmaceutical product;
2-22                       (B)  has a therapeutic value, diagnostic value,
2-23     or both; and
2-24                       (C)  is regulated by the federal Food and Drug
2-25     Administration.
2-26           Sec. 171.852.  ENTITLEMENT.  A corporation is entitled to a
2-27     credit in the amount and under the conditions and limitations
 3-1     provided by this subchapter against the tax imposed under this
 3-2     chapter.
 3-3           Sec. 171.853.  AMOUNT OF CREDIT.  (a)  Subject to Section
 3-4     171.854, the credit for any privilege period  equals 10 percent of
 3-5     the sum of:
 3-6                 (1)  the amount by which the qualified research
 3-7     expenses in this state exceed the base amount for this state; and
 3-8                 (2)  the basic research payments determined under
 3-9     Section 41(e)(1)(A), Internal Revenue Code, for this state.
3-10           (b)  If a corporation's accounting year does not correspond
3-11     to the privilege period, the base amount and any other amount used
3-12     to calculate the credit shall be multiplied by a ratio the
3-13     numerator of which is the number of days in the corporation's
3-14     accounting year that are also in the privilege period and the
3-15     denominator of which is the number of days in the privilege period.
3-16           Sec. 171.854.  EXPENSES AND PAYMENTS IN CERTAIN FIELDS OF
3-17     TECHNOLOGY.  For the purpose of determining the amount of the
3-18     credit under Section 171.853, a corporation may include only those
3-19     qualified research expenses and basic research payments in the
3-20     following fields:
3-21                 (1)  advanced computing technology;
3-22                 (2)  advanced materials technology;
3-23                 (3)  biotechnology;
3-24                 (4)  electronic device technology;
3-25                 (5)  environmental technology; and
3-26                 (6)  medical device technology.
3-27           Sec. 171.855.  LIMITATION.  The total credit claimed under
 4-1     this subchapter for a privilege period may not reduce the tax for
 4-2     the privilege period below zero.
 4-3           Sec. 171.856.  CARRYOVER OF CREDIT.  A corporation may carry
 4-4     a credit forward for not more than 15 consecutive privilege
 4-5     periods.
 4-6           Sec. 171.857.  BUSINESS LOSS CARRYOVER.  Notwithstanding
 4-7     Section 171.110(e), a corporation that has a business loss for a
 4-8     privilege period may carry the loss forward for not more than 15
 4-9     consecutive privilege periods if:
4-10                 (1)  during the privilege period the corporation
4-11     incurred or paid  qualified research expenses for research
4-12     conducted in this state; and
4-13                 (2)  the qualified research expenses were in the fields
4-14     specified in Section 171.854.
4-15           Sec. 171.858.  SALE OF UNUSED CREDIT OR BUSINESS LOSS.
4-16     (a)  A corporation that has an unused credit under this subchapter
4-17     or an unused business loss described by Section 171.857 may apply
4-18     to the comptroller to sell the credit or business loss to another
4-19     corporation.  The acquiring corporation must apply to the
4-20     comptroller to purchase an unused credit or an unused business
4-21     loss.
4-22           (b)  The comptroller shall review applications under this
4-23     section and may not approve the sale or purchase of an unused
4-24     credit under this subchapter or an unused business loss described
4-25     by Section 171.857 unless the comptroller determines that:
4-26                 (1)  the credit or loss is being purchased for money or
4-27     financial assistance in an amount equal to at least 75 percent of
 5-1     its value;
 5-2                 (2)  there is an agreement between the seller and
 5-3     purchaser specifying the means and amount of payment or financial
 5-4     assistance; and
 5-5                 (3)  the payment or financial assistance will be used
 5-6     to  fund expenses incurred in connection with the operation of new
 5-7     or expanding emerging technology in the fields specified in Section
 5-8     171.854, including expenses relating to the acquisition and
 5-9     development of real estate or other fixed assets, materials,
5-10     start-up, tenant fit-out, working capital, salaries, and research
5-11     and development.
5-12           Sec. 171.859.  RULES.  The comptroller shall adopt rules
5-13     necessary to implement this subchapter.
5-14           SECTION 2.  This Act takes effect January 1, 2002, and
5-15     applies only to:
5-16                 (1)  a report originally due on or after that date; and
5-17                 (2)  an expense or business loss incurred on or after
5-18     that date.