LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
March 6, 2001
TO: Honorable David Sibley, Chair, Senate Committee on
Business & Commerce
FROM: John Keel, Director, Legislative Budget Board
IN RE: SB96 by Nelson (Relating to use of earned, unused
franchise tax benefits for development stage companies
conducting certain research and development activities),
As Introduced
**************************************************************************
* Estimated Two-year Net Impact to General Revenue Related Funds for *
* SB96, As Introduced: negative impact of $(383,082,000) through *
* the biennium ending August 31, 2003. *
**************************************************************************
General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $(281,345,000) *
* 2003 (101,737,000) *
* 2004 (104,712,000) *
* 2005 (108,837,000) *
* 2006 (115,456,000) *
****************************************************
All Funds, Five-Year Impact:
*****************************************************
* Fiscal Year Probable Revenue Gain/(Loss) from *
* General Revenue Fund *
* 0001 *
* 2002 $(281,345,000) *
* 2003 (101,737,000) *
* 2004 (104,712,000) *
* 2005 (108,837,000) *
* 2006 (115,456,000) *
*****************************************************
Fiscal Analysis
The bill amends Chapter 171 of the Tax Code (franchise tax) to provide
tax benefits to "development stage" firms doing research in certain
specific industry sectors: advanced computing (including hardware,
software, and peripherals), advanced materials, biotechnology, electronic
devices, environmental technology, and medical devices. A "development
stage" firm is further defined as a company with no greater than $10
million in annual revenues from product sales.
The bill allows qualified companies to extend their business loss
carryover period to 15 years from the current five-year period. In
addition, the bill allows qualified firms to sell or trade to another
firm their unused research credits and accumulated business losses,
provided the Comptroller approved the transaction in advance.
The Comptroller is required to review all applications for the sale of
tax benefits. Two positive determinations by the Comptroller's Office
are required before a sale. In the first, the Comptroller must ascertain
the tax benefits would be sold or traded for at least 75 percent of
their value. In the second, the Comptroller must determine that the
ultimate uses of sale proceeds were used for the furtherance of
technology development.
The bill takes effect January 1, 2000, and applies to tax reports due on
or after that date.
Methodology
This note is based upon estimates made by the Comptroller's Office.
The Comptroller estimates are derived from various sources. Data on the
business loss carryovers of companies in the affected industry groups
were obtained from Comptroller franchise tax records. Data on research
tax credits were obtained from the Comptroller's tax files and from
information provided by the Internal Revenue Service. The estimated
fiscal impacts of each component were totaled, producing the overall
fiscal impact. Once this static, fiscal impact was calculated, a dynamic
fiscal impact was calculated using a Texas-specific general equilibrium
model to distribute the savings that otherwise would have been paid in
taxes by businesses among the state's economic sectors. The revenue
feedback calculation was based on the historical relationships between
state tax revenues and associated economic factors.
The Comptroller analysis assumes qualified development stage companies
would sell their tax benefits each year as the benefits became eligible
for sale.
Note: Because the bill has a stated effective date of January 1, 2000,
this analysis assumes business losses and research credits earned on or
after that date would qualify for sale to another firm. Therefore, the
revenue impact for fiscal year 2002 reflects the sale of unused business
losses and research credits for tax years 2000, 2001, and 2002.
Local Government Impact
No significant fiscal implication to units of local government is
anticipated.
Source Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK, JO, CT