83R6620 KLA-F
 
  By: Murphy H.B. No. 800
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to a sales and use tax exemption and a franchise tax credit
  related to certain research and development activities.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  LEGISLATIVE FINDINGS AND PURPOSES. (a) The
  legislature finds that:
               (1)  Texas economic activity accounts for more than
  eight percent of the economic activity in the United States, but
  accounts for only five percent of research and development spending
  in the United States;
               (2)  research and development activities create:
                     (A)  high-paying jobs that provide substantial
  benefits to the Texas economy; and
                     (B)  new technologies and applications that
  generate economic efficiency and growth; and
               (3)  private-sector research and development
  activities create partnerships between private-sector entities and
  institutions of higher education, and those partnerships expand
  opportunities for innovation and learning.
         (b)  Based on the findings specified in Subsection (a) of
  this section, the purposes of this Act are to:
               (1)  make Texas economically competitive in the field
  of research and development;
               (2)  reduce the tax burden on research and development
  activities in Texas and encourage new investments in this state;
               (3)  promote the creation of new, highly skilled,
  high-paying jobs in Texas; and
               (4)  complement this state's manufacturing industries
  by encouraging innovation and efficiency in applying new
  technologies and producing new products.
         SECTION 2.  SALES AND USE TAX EXEMPTION.  Subchapter H,
  Chapter 151, Tax Code, is amended by adding Section 151.3182 to read
  as follows:
         Sec. 151.3182.  CERTAIN PROPERTY AND SERVICES USED IN
  RESEARCH AND DEVELOPMENT ACTIVITIES. (a) In this section:
               (1)  "Internal Revenue Code" has the meaning assigned
  by Section 171.651.
               (2)  "Qualified research" and "qualified service" have
  the meanings assigned by Section 41, Internal Revenue Code.
         (b)  The sale, storage, use, or other consumption of tangible
  personal property directly used or consumed in qualified research
  or of qualified services is exempted from the taxes imposed by this
  chapter if the property or services are sold, leased, or rented to,
  or stored, used, or consumed by, a person who:
               (1)  is engaged in qualified research; and
               (2)  will not, as a taxable entity as defined by Section
  171.0002 or as a member of a combined group that is a taxable
  entity, claim a credit under Subchapter M, Chapter 171, on a
  franchise tax report for the period during which the sale, storage,
  use, or other consumption occurs.
         SECTION 3.  FRANCHISE TAX CREDIT.  Chapter 171, Tax Code, is
  amended by adding Subchapter M to read as follows:
  SUBCHAPTER M.  TAX CREDIT FOR CERTAIN RESEARCH AND DEVELOPMENT
  ACTIVITIES
         Sec. 171.651.  DEFINITIONS. In this subchapter:
               (1)  "Internal Revenue Code" means the Internal Revenue
  Code of 1986 in effect on December 31, 2011, excluding any changes
  made by federal law after that date, but including any regulations
  adopted under that code applicable to the tax year to which the
  provisions of the code in effect on that date applied.
               (2)  "Qualified research" has the meaning assigned by
  Section 41, Internal Revenue Code, except that the research must be
  conducted in this state.
               (3)  "Qualified research expense" has the meaning
  assigned by Section 41, Internal Revenue Code, except that the
  expense must be for research conducted in this state.
         Sec. 171.652.  ELIGIBILITY FOR CREDIT. A taxable entity is
  eligible for a credit against the tax imposed under this chapter in
  the amount and under the conditions and limitations provided by
  this subchapter.
         Sec. 171.653.  INELIGIBILITY FOR CREDIT FOR CERTAIN PERIODS.
  (a) A taxable entity is not eligible for a credit on a report
  against the tax imposed under this chapter for qualified research
  expenses incurred during the period on which the report is based if
  the taxable entity, or a member of the combined group if the taxable
  entity is a combined group, received an exemption under Section
  151.3182 during that period.
         (b)  A taxable entity's ineligibility under this section for
  a credit on a report for the period on which the report is based does
  not affect the taxable entity's eligibility to claim a carryforward
  of unused credit under Section 171.659 on that report.
         Sec. 171.654.  AMOUNT OF CREDIT. (a) Except as provided by
  Subsection (b), the credit for any report equals five percent of the
  difference between:
               (1)  the qualified research expenses incurred during
  the period on which the report is based, subject to Section 171.655;
  and
               (2)  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, subject to Section 171.655.
         (b)  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 credit for the period on which the
  report is based equals 2.5 percent of the qualified research
  expenses incurred during that period.
         (c)  Notwithstanding whether the time for claiming a credit
  under this subchapter has expired for any tax period used in
  determining the average amount of qualified research expenses under
  Subsection (a)(2), the determination of which research expenses are
  qualified research expenses for purposes of computing that average
  must be made in the same manner as that determination is made for
  purposes of Subsection (a)(1). This subsection does not apply to a
  credit to which a taxable entity was entitled under Subchapter O, as
  that subchapter existed before January 1, 2008.
         (d)  The comptroller may adopt rules for determining which
  research expenses are qualified research expenses for purposes of
  Subsection (a) 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 under Subsection (a)(2).
         Sec. 171.655.  ATTRIBUTION OF EXPENSES FOLLOWING TRANSFER OF
  CONTROLLING INTEREST. (a) If a 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 credit under this
  subchapter, the amount of the acquiring taxable entity's qualified
  research expenses equals the sum of:
               (1)  the amount of qualified research expenses incurred
  by the acquiring taxable entity during the period on which the
  report is based; and
               (2)  subject to Subsection (d), the amount of qualified
  research expenses incurred by the acquired taxable entity or unit
  during the portion of the period on which the report is based that
  precedes the date of the acquisition.
         (b)  A taxable entity that sells or otherwise transfers to
  another taxable entity a controlling interest in another taxable
  entity or in a separate unit of a taxable entity during a period on
  which a report is based may not claim a credit under this subchapter
  for qualified research expenses incurred by the transferred taxable
  entity or unit during the period if the taxable entity is ineligible
  for the credit under Section 171.653 or if the acquiring taxable
  entity claims a credit under this subchapter for the corresponding
  period.
         (c)  If during any of the three tax periods following the tax
  period in which a sale or other transfer described by Subsection (b)
  occurs, the taxable entity that sold or otherwise transferred the
  controlling interest reimburses the acquiring taxable entity for
  research activities conducted on behalf of the taxable entity that
  made the sale or other transfer, the amount of the reimbursement is:
               (1)  subject to Subsection (e), included as qualified
  research expenses incurred by the taxable entity that made the sale
  or other transfer for the tax period during which the reimbursement
  was paid; and
               (2)  excluded from the qualified research expenses
  incurred by the acquiring taxable entity for the tax period during
  which the reimbursement was paid.
         (d)  An acquiring taxable entity may not include on a report
  the amount of qualified research expenses otherwise authorized by
  Subsection (a)(2) to be included if the taxable entity that made the
  sale or other transfer described by Subsection (b) received an
  exemption under Section 151.3182 during the portion of the period
  on which the acquiring taxable entity's report is based that
  precedes the date of the acquisition.
         (e)  A taxable entity that makes a sale or other transfer
  described by Subsection (b) may not include on a report the amount
  of reimbursement otherwise authorized by Subsection (c)(1) to be
  included if the reimbursement is for research activities that
  occurred during a tax period under this chapter during which that
  taxable entity received an exemption under Section 151.3182.
         Sec. 171.656.  COMBINED REPORTING. (a) A credit under this
  subchapter for qualified research expenses incurred by a member of
  a combined group must be claimed on the combined report required by
  Section 171.1014 for the group.
         (b)  An upper tier entity that includes the total revenue of
  a lower tier entity for purposes of computing its taxable margin as
  authorized by Section 171.1015 may claim the credit under this
  subchapter 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.
         Sec. 171.657.  BURDEN OF ESTABLISHING CREDIT. The burden of
  establishing entitlement to and the value of the credit is on the
  taxable entity.
         Sec. 171.658.  LIMITATIONS. The total credit claimed under
  this subchapter for a report, including the amount of any
  carryforward credit under Section 171.659, may not exceed 50
  percent of the amount of franchise tax due for the report before any
  other applicable tax credits.
         Sec. 171.659.  CARRYFORWARD. If a taxable entity is
  eligible for a credit that exceeds the limitation under Section
  171.658, the taxable entity may carry the unused credit forward
  until all of the credit has been claimed.  Credits and credit
  carryforwards are considered to be used in the following order:
               (1)  a credit carryforward from a previous report; and
               (2)  a current year credit.
         Sec. 171.660.  ASSIGNMENT PROHIBITED. A taxable entity may
  not convey, assign, or transfer the credit allowed under this
  subchapter to another entity unless all of the assets of the taxable
  entity are conveyed, assigned, or transferred in the same
  transaction.
         Sec. 171.661.  APPLICATION FOR CREDIT. A taxable entity
  must apply for a credit under this subchapter on or with the tax
  report for the period for which the credit is claimed.
         Sec. 171.662.  RULES. The comptroller shall adopt rules and
  forms necessary to implement this subchapter.
         SECTION 4.  TRANSITION PROVISION.  Section 151.3182, Tax
  Code, as added by this Act, does not affect tax liability accruing
  before the effective date of this Act. That liability continues in
  effect as if this Act had not been enacted, and the former law is
  continued in effect for the collection of taxes due and for civil
  and criminal enforcement of the liability for those taxes.
         SECTION 5.  APPLICABILITY.  Subchapter M, Chapter 171, Tax
  Code, as added by this Act, applies only to a report originally due
  on or after January 1, 2014.
         SECTION 6.  EFFECTIVE DATE.  This Act takes effect October 1,
  2013.