83R5309 KLA-D

By: Alvarado H.B. No. 1499

A BILL TO BE ENTITLED

AN ACT

relating to a franchise tax credit for certain research and development activities.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 171, Tax Code, is amended by adding Subchapter O-1 to read as follows:

SUBCHAPTER O-1. TAX CREDIT FOR CERTAIN RESEARCH AND DEVELOPMENT

ACTIVITIES

Sec. 171.741. DEFINITIONS. In this subchapter:

(1) "Base amount," "basic research payment," and "qualified research expense" have the meanings assigned those terms by Section 41, Internal Revenue Code, except that all of those payments and expenses must be for research conducted within this state.

(2) "Strategic investment area" means an area that is determined by the comptroller under Section 171.746 that is:

(A) a county within this state with above state average unemployment and below state average per capita income;

(B) an area within this state that is a federally designated urban enterprise community or an urban enhanced enterprise community; or

(C) a defense economic readjustment zone designated under Chapter 2310, Government Code.

Sec. 171.742. ELIGIBILITY. (a) 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.

(b) A taxable entity may claim a credit under Section 171.743(d) or take a carryforward credit without regard to whether the strategic investment area in which the entity incurred qualified research expenses or made basic research payments subsequently loses its designation as a strategic investment area.

Sec. 171.743. CALCULATION OF CREDIT. (a) The credit for any report equals five percent of the sum of:

(1) the excess of qualified research expenses incurred in this state during the period on which the tax is based over the base amount for this state; and

(2) the basic research payments determined under Section 41(e)(1)(A), Internal Revenue Code, for this state during the period on which the tax is based.

(b) A taxable entity may elect to compute the credit for qualified research expenses incurred in this state in a manner consistent with the alternative incremental credit described in Section 41(c)(4), Internal Revenue Code, only if for the corresponding federal tax period:

(1) a federal election was made to compute the federal credit under Section 41(c)(4), Internal Revenue Code;

(2) the taxable entity was a member of a consolidated group for which a federal election was made under Section 41(c)(4), Internal Revenue Code; or

(3) the taxable entity did not claim the federal credit under Section 41(a)(1), Internal Revenue Code.

(c) For purposes of the alternate credit computation method in Subsection (b), the credit percentages applicable to qualified research expenses described in Sections 41(c)(4)(A)(i), (ii), and (iii), Internal Revenue Code, are 0.41 percent, 0.55 percent, and 0.69 percent, respectively.

(d) In computing the credit under this section, a taxable entity may multiply by two the amount of any qualified research expenses and basic research payments made in a strategic investment area.

(e) The burden of establishing entitlement to and the value of the credit is on the taxable entity.

(f) For the purposes of this section, "gross receipts" as used in Section 41, Internal Revenue Code, means gross receipts as determined under Section 171.103.

Sec. 171.744. LIMITATIONS. The sum of the total credit claimed under this subchapter for a report, including the amount of any carryforward credit under Section 171.745, and the amount of unused credits accrued under Subchapter O before its repeal on January 1, 2008, and claimed on the report as authorized by Section 18(d), Chapter 1 (H.B. 3), Acts of the 79th Legislature, 3rd Called Session, 2006, may not exceed 50 percent of the amount of franchise tax due for the report before any other applicable tax credits.

Sec. 171.745. CARRYFORWARD. If a taxable entity is eligible for a credit that exceeds the limitation under Section 171.744, the taxable entity may carry the unused credit forward for not more than 20 consecutive reports. Credits, including credit carryforwards, are considered to be used in the following order:

(1) a credit carryforward of unused credits accrued under Subchapter O before its repeal on January 1, 2008, and claimed as authorized by Section 18(d), Chapter 1 (H.B. 3), Acts of the 79th Legislature, 3rd Called Session, 2006;

(2) a credit carryforward under this subchapter; and

(3) a current year credit.

Sec. 171.746. DETERMINATION OF STRATEGIC INVESTMENT AREAS. (a) Not later than September 1 each year, the comptroller shall determine areas that qualify as strategic investment areas using the most recently completed full calendar year data available on that date and, not later than October 1, shall publish a list and map of the designated areas.

(b) The designation is effective for the following calendar year for purposes of credits available under this subchapter.

Sec. 171.747. BIENNIAL REPORT BY COMPTROLLER. (a) Before the beginning of each regular session of the legislature, the comptroller shall submit to the governor, the lieutenant governor, and the speaker of the house of representatives a report that states:

(1) the total amount of expenses and payments incurred by taxable entities that claim a credit under this subchapter;

(2) the total amount of credits applied against the tax under this chapter and the amount of unused credits including:

(A) the total amount of franchise tax due by taxable entities claiming a credit under this subchapter before and after the application of the credit;

(B) the average percentage reduction in franchise tax due by taxable entities claiming a credit under this subchapter;

(C) the percentage of tax credits that were awarded to taxable entities with fewer than 100 employees; and

(D) the two-digit standard industrial classification of taxable entities claiming a credit under this subchapter;

(3) the geographical distribution of expenses and payments giving rise to a credit authorized by this subchapter;

(4) the effect of the credit provided by this subchapter on the amount of research and development performed in this state and employment in research and development in this state; and

(5) the effect of the credit provided under this subchapter on employment, capital investment, and personal income in this state and on state tax revenues.

(b) The final report issued prior to the expiration of this subchapter shall include historical information on the credit authorized under this subchapter.

(c) The comptroller may not include in the report information that is confidential by law.

(d) For purposes of this section, the comptroller may require a taxable entity that claims a credit under this subchapter to submit information, on a form provided by the comptroller, on the location of the taxable entity's research expenses and payments in this state and any other information necessary to complete the report required by this section.

Sec. 171.748. COMPTROLLER POWERS AND DUTIES. The comptroller shall adopt rules and forms necessary to implement this subchapter.

Sec. 171.749. 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. 171.750. EXPIRATION. (a) This subchapter expires December 31, 2022.

(b) The expiration of this subchapter does not affect the carryforward of a credit under Section 171.745 that was accrued before the date this subchapter expires.

SECTION 2. Section 228.153(a)(1), Insurance Code, is amended to read as follows:

(1) "Strategic investment area" means an area of this state that qualifies as a strategic investment area under Subchapter O-1 [O], Chapter 171, Tax Code, or, after the date that subchapter expires, an area that qualified as a strategic investment area under that subchapter immediately before that date.

SECTION 3. Section 313.051(a), Tax Code, is amended to read as follows:

(a) This subchapter applies only to a school district that has territory in:

(1) an area that qualifies [qualified] as a strategic investment area under Subchapter O-1 [O], Chapter 171[, immediately before that subchapter expired]; or

(2) a county:

(A) that has a population of less than 50,000; and

(B) in which, from 1990 to 2000, according to the federal decennial census, the population:

(i) remained the same;

(ii) decreased; or

(iii) increased, but at a rate of not more than three percent per annum.

SECTION 4. (a) This Act applies only to a report originally due on or after the effective date of this Act.

(b) The change in law made by this Act does not affect the obligation for or the payment, computation, and collection of the franchise tax for a report originally due before the effective date of this Act. The obligation for and the payment, computation, and collection of the franchise tax for a report originally due before the effective date of this Act is governed by the law in effect on the date the report was originally due and that law is continued in effect for those purposes.

SECTION 5. This Act takes effect January 1, 2014.