By Hartnett                                           H.B. No. 2815
         77R8657 DAK-D                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to a phased-in and limited exemption for certain purchases
 1-3     of machinery and equipment used for research and development from
 1-4     sales and use taxes.
 1-5           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-6           SECTION 1. Subchapter H, Chapter 151, Tax Code, is amended by
 1-7     adding Section 151.3181 to read as follows:
 1-8           Sec. 151.3181.  EQUIPMENT USED IN RESEARCH OR DEVELOPMENT.
 1-9     (a)  Subject to the limitations in Subsection (b), there are
1-10     exempted from the taxes imposed by this chapter machinery,
1-11     equipment, or replacement parts that are used directly in the
1-12     research or development of inventions, products, processes, or
1-13     technology by a person that is primarily engaged in:
1-14                 (1)  the manufacturing, processing, or fabrication of
1-15     tangible personal property for ultimate sale; or
1-16                 (2)  the performance of scientific or technical
1-17     services for a person described by Subdivision (1).
1-18           (b)  The exemption from the taxes imposed by this chapter
1-19     under Subsection (a)  is limited to the following amounts:
1-20                 (1)  the first $100,000 of tax on qualifying purchases
1-21     is exempt for each taxpayer in 2002;
1-22                 (2)  the first $200,000 of tax on qualifying purchases
1-23     is exempt for each taxpayer in 2003;
1-24                 (3)  the first $300,000 of tax on qualifying purchases
 2-1     is exempt for each taxpayer in 2004;
 2-2                 (4)  the first $400,000 of tax on qualifying purchases
 2-3     is exempt for each taxpayer in 2005; and
 2-4                 (5)  the first $500,000 of tax on qualifying purchases
 2-5     is exempt for each taxpayer in 2006 and each following year.
 2-6           (c)  The exemption does not include:
 2-7                 (1)  office equipment or supplies; or
 2-8                 (2)  equipment or supplies used in sales or
 2-9     distribution activities or in transportation activities.
2-10           (d)  In this section:
2-11                 (1)  "Manufacturing" has the meaning assigned by
2-12     Section 151.318.
2-13                 (2)  "Research or development" has the meaning assigned
2-14     to "qualified research" by Section 41(d)(1), Internal Revenue Code.
2-15           SECTION 2. (a)  This Act takes effect January 1, 2002.
2-16           (b)  The change in law made by this Act does not affect taxes
2-17     imposed before the effective date of this Act, and the law in
2-18     effect before the effective date of this Act is continued in effect
2-19     for purposes of the liability for and collection of those taxes.