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.