BILL ANALYSIS |
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C.S.H.B. 800 |
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By: Murphy |
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Economic & Small Business Development |
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Committee Report (Substituted) |
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BACKGROUND AND PURPOSE
According to interested parties, research and development activity creates high-paying jobs that provide substantial benefit to the Texas economy, new technologies and applications that generate economic efficiency and growth, and partnerships with institutions of higher education that expand opportunities for innovation and learning. These interested parties contend, however, that research and development in Texas has lagged behind other states in recent years to the point that Texas' share of the national expenditures for research and development is smaller than the state's share of the overall national economy, which these parties correlate to the removal of a tax credit for research and development. The parties cite a recent study that estimates that the lack of a research and development tax credit in Texas has cost the state more than $3 billion annually and more than 20,000 jobs.
C.S.H.B. 800 seeks to make Texas economically competitive in the field of research and development by establishing a tax credit for research and development and consequently encouraging new investments, promoting the creation of high-paying jobs, and complementing Texas' manufacturing industries through innovation and efficiency.
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RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is expressly granted to the comptroller of public accounts in SECTION 3 of this bill.
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ANALYSIS
C.S.H.B. 800 amends the Tax Code to exempt from the sales and use tax the sale, storage, or use of depreciable tangible personal property directly used in qualified research if the property is sold, leased, or rented to, or stored or used by a person who is engaged in qualified research and will not, as a taxable entity or as a member of a combined group that is a taxable entity, claim a tax credit for research and development (R&D) activities on a franchise tax report for the period during which the sale, storage, or use occurs. The bill defines "depreciable tangible personal property" as tangible personal property that has a useful life of more than one year and is subject to depreciation under generally accepted accounting principles or the federal Internal Revenue Code.
C.S.H.B. 800 requires the comptroller of public accounts, before the beginning of each regular session of the legislature, to submit to the legislature and the governor estimates of both the total number of persons who received such exemptions from the sales and use tax and the total amount of those exemptions and an evaluation of the effect of those exemptions in combination with the R&D tax credit authorized by the bill's provisions on the amount of qualified research performed in Texas, R&D employment in Texas, economic activity in Texas, and state tax revenues. The bill authorizes the comptroller to require a person who receives such an exemption to complete a form to provide the information necessary for the comptroller to make that evaluation. The bill establishes that the information provided on the form is confidential and not subject to disclosure under the state public information law. The bill requires the comptroller to provide the estimates and evaluation as part of the comptroller's biannual report to the legislature and the governor on the effect of certain tax provisions.
C.S.H.B. 800 makes a taxable entity eligible for a credit against the franchise tax for any tax report in an amount equal to five percent of the difference between the qualified research expenses, as defined by the federal Internal Revenue Code, incurred by the entity for research conducted in Texas during the period on which the report is based and 50 percent of the average amount of qualified research expenses incurred during the three tax periods preceding the period on which the report is based. The bill provides for an alternate calculation of the amount of that R&D tax credit under the following circumstances: · If the taxable entity contracts with one or more public or private institutions of higher education for the performance of qualified research and the taxable entity incurred qualified research expenses in Texas under the contract during the period on which the report is based, the amount of the credit for that report is 6.25 percent of the difference between all qualified research expenses incurred during the period on which the report is based and 50 percent of the average amount of all qualified research expenses incurred during the three tax periods preceding the period on which the report is based. · If the taxable entity has no qualified research expenses in one or more of the three tax periods preceding the period on which the report is based, the amount of the credit for that report is 2.5 percent of the qualified research expenses incurred during that period. · If the taxable entity contracts with one or more public or private institutions of higher education for the performance of qualified research and the taxable entity incurred qualified research expenses in Texas under the contract during the period on which the report is based but has no qualified research expenses in one or more of the three tax periods preceding the period on which the report is based, the amount of the credit is 3.125 percent of all qualified research expenses incurred during that period.
C.S.H.B. 800 makes a taxable entity ineligible for a franchise tax credit on a tax report for qualified research expenses incurred during the period on which the report is based if the entity, or a member of the combined group if the taxable entity is a combined group, received a sales and use tax exemption during that period, but the ineligibility expressly does not affect the taxable entity's eligibility to claim a carryforward of unused credit on that report.
C.S.H.B. 800 requires the determination of which research expenses are qualified research expenses for purposes of computing the average amount of those expenses to be made in the same manner as such a determination for purposes of computing the expenses incurred during the period on which a tax report is based. The bill exempts from this requirement a credit to which a taxable entity was entitled under prior law relating to a credit for R&D activities as those provisions existed before January 1, 2008. The bill authorizes the comptroller to adopt rules for determining which research expenses are qualified research expenses to prevent disparities in those determinations that may result from the taxable entity using different accounting methods for the period on which the report is based, as compared to any preceding tax periods used in determining the average amount of qualified research expenses.
C.S.H.B. 800 sets out provisions relating to the attribution of a taxable entity's qualified research expenses if the taxable entity acquires a controlling interest in another taxable entity or in a separate unit of another taxable entity during a tax period with respect to which the acquiring taxable entity claims a franchise tax credit and sets out provisions relating to the transferring or selling entity's eligibility to claim a credit for qualified research expenses for a period during which the transfer or sale occurs.
C.S.H.B. 800 requires a franchise tax credit for qualified research expenses incurred by a member of a combined group to be claimed on the combined report required for the group, and establishes that the combined group is the taxable entity for purposes of the bill's provisions. The bill authorizes an upper tier entity that includes the total revenue of a lower tier entity for purposes of computing its taxable margin to claim such a credit for qualified research expenses incurred by the lower tier entity to the extent of the upper tier entity's ownership interest in the lower tier entity.
C.S.H.B. 800 places the burden of establishing entitlement to and the value of the credit on the taxable entity and limits the total credit claimed for a report, including the amount of any carryforward credit, to 50 percent of the amount of franchise tax due for the report before any other applicable tax credits. The bill authorizes a taxable entity that is eligible for a credit that exceeds the limit to carry the unused credit forward until all of the credit has been claimed.
C.S.H.B. 800 prohibits a taxable entity from conveying, assigning, or transferring the franchise tax credit to another entity unless all of the assets of the taxable entity are conveyed, assigned, or transferred in the same transaction and requires a taxable entity to apply for the credit on or with the report for the period for which the credit is claimed.
C.S.H.B. 800 requires the comptroller to adopt rules and forms necessary to implement the bill's provisions authorizing a credit against the franchise tax.
C.S.H.B. 800 requires the comptroller, before the beginning of each regular session of the legislature, to submit to the legislature and the governor estimates of the total number of taxable entities that applied credits for the applicable research and development activities against the franchise tax, the total amount of those credits, and the total amount of unused credits carried forward. The bill authorizes the comptroller to require a taxable entity that claims a franchise tax credit to complete a form to provide the information necessary for the comptroller to make the evaluations required by the bill's provisions relating to the effect of the sales and use tax exemptions in combination with the franchise tax credit. The bill specifies that the information provided on the form is confidential and not subject to disclosure under the state public information law. The bill requires the comptroller to provide the estimates as part of the comptroller's biannual report to the legislature and the governor on the effect of certain tax provisions.
C.S.H.B. 800 requires the comptroller to submit the initial estimates of the total number of persons who received the sales and use tax exemptions under the bill's provisions, an estimate of the total amount of those exemptions, and the estimates relating to the franchise tax credits before the 84th Regular Legislative Session commences in January 2015. The bill specifies that the comptroller is not required to submit the initial evaluation required by the bill's provisions relating to the effect of the sales and use tax exemptions in combination with the franchise tax credit until January 2017, but requires the comptroller to submit that evaluation before the 85th Regular Legislative Session commences.
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EFFECTIVE DATE
January 1, 2014.
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COMPARISON OF ORIGINAL AND SUBSTITUTE
While C.S.H.B. 800 may differ from the original in minor or nonsubstantive ways, the following comparison is organized and highlighted in a manner that indicates the substantial differences between the introduced and committee substitute versions of the bill.
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