SRC-TJG S.B. 538 78(R)   BILL ANALYSIS


Senate Research Center   S.B. 538
78R5582 DAK-DBy: Williams
Finance
3/18/2003
As Filed


DIGEST AND PURPOSE 

Currently, franchise tax incentives for corporations conducting certain
research and development activities do not exist.  As proposed, S.B. 538
establishes a franchise tax credit for certain research and development
conducted in Texas.  The bill offers a 10 percent credit on research
spending in six designated areas. 

RULEMAKING AUTHORITY

Rulemaking authority is expressly granted to the comptroller of public
accounts of the State of Texas in SECTION 1 (Section 171.928, Tax Code) of
this bill. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Chapter 171, Tax Code, by adding Subchapter V, as
follows: 

SUBCHAPTER V.  CREDITS AND BUSINESS LOSS CARRYOVERS FOR CERTAIN RESEARCH
AND DEVELOPMENT ACTIVITIES  

Sec. 171.921.  DEFINITIONS.  Defines "advanced computing technology,"
"advanced materials technology," "base amount," "basic research payment,"
"qualified research expense," "biotechnology," "electronic device
technology," "environmental technology," and "medical device technology." 

Sec. 171.922.  ENTITLEMENT.  Provides that a corporation is entitled to a
credit in the amount and under the conditions and limitations provided by
this subchapter against the tax imposed under this chapter. 

Sec. 171.923.  AMOUNT OF CREDIT.  (a) Provides that, subject to Section
171.924, the credit for any privilege period equals 10 percent of the sum
of certain amounts. 

(b) Requires the base amount and any other amount used to calculate the
credit, if a corporation's accounting year does not correspond to the
privileged period, to be multiplied by a ration the numerator of which is
the number of days in the corporation's accounting year that are also in
the privilege period and the denominator of which is the number of days in
the privilege period.  

Sec. 171.924.  EXPENSES AND PAYMENTS IN CERTAIN FIELDS OF TECHNOLOGY.
Authorizes a company, for the purpose of determining the amount of the
credit under Section 171.923, to include only those qualified research
expenses and basic research payments in certain fields. 

Sec. 171.925.  CARRYOVER OF CREDIT.  Authorizes a corporation to carry a
credit forward for not more than 15 consecutive privilege periods. 

 Sec. 171.926.  BUSINESS LOSS CARRYOVER.  Authorizes a corporation that
has a business loss for a privilege period, notwithstanding Section
171.110(e), to carry the loss forward for not more than 15 consecutive
privilege periods if certain conditions apply. 

Sec. 171.927.  SALE OF UNUSED CREDIT OR BUSINESS LOSS.  (a) Authorizes a
corporation that has an unused credit under this subchapter or an unused
business loss described by Section 171.926 to apply to the comptroller of
public accounts of the State of Texas (comptroller) to sell the credit or
business loss to another corporation.  Requires the acquiring corporation
to apply to the comptroller to purchase an unused credit or an unused
business loss. 

(b) Requires the comptroller to review applications under this section and
prohibits the comptroller from approving the sale or purchase of an unused
credit under this subchapter or an unused business loss described by
Section 171.926 unless the comptroller determines certain circumstances
apply. 

Sec. 171.928.  RULES.  Requires the comptroller to adopt rules necessary
to implement this subchapter. 

SECTION 2.  Effective date: January 1, 2004.
            Provides that this Act applies to:  (1)  a report originally
due on or after that date; and (2)              an expense or business
loss incurred on or after that date.