By George                                             H.B. No. 3216
         Line and page numbers may not match official copy.
         Bill not drafted by TLC or Senate E&E.
                                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.  BUSINESS LOSS CARRYOVERS AND REFUNDS FOR
 1-8                 CERTAIN 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 handheld 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)  "Basic research payment" and "qualified research
1-21     expense" have the meanings assigned those terms by Section 41,
1-22     Internal Revenue Code.
1-23                 (4)  "Biotechnology" means the technology, including
 2-1     products, services, and subtechnologies, involving the functioning
 2-2     of biological systems from the macro level to the molecular and
 2-3     subatomic levels.
 2-4                 (5)  "Electronic device technology" means the
 2-5     technology involving:
 2-6                       (A)  microelectronics;
 2-7                       (B)  semiconductors;
 2-8                       (C)  electronic equipment and instrumentation;
 2-9                       (D)  radio frequency, microwave, and millimeter
2-10     electronics;
2-11                       (E)  optical and optic-electrical devices; and
2-12                       (F)  data and digital communications an imaging
2-13     devices.
2-14                 (6)  "Environmental technology" means the technology
2-15     used:
2-16                       (A)  to assess and prevent threats or damage to
2-17     human health or the environment;
2-18                       (B)  for environmental cleanup; and
2-19                       (C)  to develop alternative energy sources.
2-20                 (7)  "Medical device technology" means the technology
2-21     involving any medical equipment or product that:
2-22                       (A)  is not a pharmaceutical product;
2-23                       (B)  has a therapeutic value, diagnostic value,
2-24     or both; and
2-25                       (C)  is regulated by the federal Food and Drug
2-26     Administration.
 3-1           Sec. 171.852.  BUSINESS LOSS CARRYOVER. Notwithstanding
 3-2     Section 171.110(e), a corporation that has a business loss for a
 3-3     privilege period may carry the loss forward for not more than 15
 3-4     consecutive privilege periods if:
 3-5                 (1)  during the privilege period the corporation
 3-6     incurred or paid qualified research expenses; and
 3-7                 (2)  the qualified research expenses were in the fields
 3-8     of:
 3-9                       (A)  advanced computing technology;
3-10                       (B)  advanced materials technology;
3-11                       (C)  biotechnology;
3-12                       (D)  electronic device technology;
3-13                       (E)  environmental technology; or
3-14                       (F)  medical device technology.
3-15           Sec. 171.853.  REFUND OF BUSINESS LOSS OR CREDIT FOR CERTAIN
3-16     CORPORATIONS. (a)  A corporation is entitled to receive a refund as
3-17     provided by this section if the corporation:
3-18                 (1)  has product revenues for the year preceding the
3-19     privilege period equal to or less than $5 million; and
3-20                 (2)  has:
3-21                       (A)  a business loss carryover described by
3-22     Section 171.852; or
3-23                       (B)  a research and development tax credit under
3-24     Subchapter O.
3-25           (b)  The amount of the refund is 75 percent of the value of
3-26     the unused business loss or credit.
 4-1           (c)  A corporation may not receive an amount under this
 4-2     section that would result in the corporation and its affiliated
 4-3     taxpayers receiving, over the lifetime of the corporation or the
 4-4     affiliated taxpayer, an amount greater than $30 million of
 4-5     cumulative refunds under this section.  A corporation is affiliated
 4-6     with a taxpayer for the purposes of this subsection if:
 4-7                 (1)  the taxpayer directly or indirectly owns or
 4-8     controls 10 percent or more of the voting rights or 10 percent or
 4-9     more of the value of all classes of stock of the corporation; or
4-10                 (2)  another organization directly or indirectly owns
4-11     or controls 10 percent or more of the voting rights or 10 percent
4-12     or more of the value of all classes of stock of both the taxpayer
4-13     and the corporation.
4-14           Sec. 171.854.  RULES.  The comptroller shall adopt rules
4-15     necessary to implement this subchapter.
4-16           SECTION 2.  This Act takes effect January 1, 2002, and
4-17     applies only to a report originally due on or after that date.