SB2206

The new credit generally equals 8.722% of the difference between current-period qualified Texas research expenses and half the average of those expenses in the preceding three tax periods, up from 5% under the old credit. The rate is 10.903%, previously 6.25%, when the entity incurs qualified research expenses under a contract with a qualifying public or private higher-education institution. That higher rate applies to the formula using all qualified expenses, not just the institutional contract. If any of the three prior periods has no qualified research expenses, the alternative is 4.361% of current qualified expenses, or 5.451% with the qualifying institutional contract; the former rates were 2.5% and 3.125%. These are credit rates on the specified expense calculations, not reductions of the franchise-tax rate itself. Final law, 171.9204; Prior rates and formula; Qualifying institution definitions.

The expense starting point is the Texas-research portion of total qualified research expenses reported on IRS Form 6765, line 48, including successor forms or equivalent renumbered lines. The amounts must comply with federal law for the relevant federal tax year, with specified treatment of timely amended forms and final IRS adjustments. Expenses must be paid or incurred by the entity, its combined-group member or the qualifying lower-tier entity. This replaces the old statute’s reference to federal law frozen at December 31, 2011; calling something “research” on a financial statement is not enough by itself. Final law, 171.9202; Prior definition; IRS Form 6765; IRS qualification and form instructions.

The act permits statistical sampling allowed by IRS Revenue Procedure 2011-42 or its successor, protects otherwise-qualified supplies from exclusion merely because of their sales-tax treatment, and recognizes the Texas portion of adjusted financial-statement research costs under the specified accounting rule only when the IRS or comptroller determines that the entity meets the IRS requirements for accepting those costs as sufficient evidence. It does not automatically accept every accounting expense. Changes to qualified research expenses from an audit, adjustment or amended return trigger a Texas amended report. Final law, 171.9202(d)–(e) and section 2; IRS sampling requirements.

Ordinarily, the credit plus carryforwards cannot exceed 50% of franchise tax due before other credits; unused new credits can be carried forward for up to 20 consecutive reports. A special refundable credit is available to entities owing no tax under 171.001(d) or 171.002(d): qualifying new veteran-owned businesses and entities meeting the statutory low-tax or revenue-threshold tests. That refund is not subject to the 50% limit, but is not available merely because any business happens to owe zero tax for some other reason. A claimant must apply with the report or, if it does not file one, on the comptroller’s form by the date the report would have been due. Final law, 171.9205 and 171.9207–.9208; Veteran-business provision; Low-tax and revenue tests.

Combined groups claim on the combined report; a qualifying upper-tier entity may claim lower-tier expenses to the extent of its ownership interest. Credits generally cannot be sold or assigned, but transfer is allowed when substantially all the entity’s assets transfer in the same transaction; the old exception required all assets. The new statute specifies the order for using older and newer carryforwards before current credits, requires legislative estimates including refunds, and protects the property-tax-relief fund by requiring offsetting franchise-tax deposits. Final law, 171.9206 and 171.9208–.9213; Prior transfer exception.

The old research-equipment sales-tax exemption and old credit subchapter are repealed January 1, 2026, rather than expiring at the end of 2026. Earlier sales-tax liabilities remain enforceable, and already-earned unused old credits survive under their original claiming and expiration rules. The new credit has no sunset in this act and applies to reports originally due on or after January 1, 2026—not simply to research performed after that date. It cannot be claimed for a report period in which the entity or a combined-group member received the old research sales-tax exemption. Final law, sections 3–6; Former sales-tax exemption; Former credit expiration.

Changes during passage: The sole indexed amendment, adopted April 28, changed the Form 6765 references from “line 9 or 28” to “line 48.” That correction appears in the Senate-passed and final law. The introduced and Senate committee texts otherwise match, and the Senate-passed, House committee and final operative texts match. Bettencourt amendment; Adopted disposition; Introduced; Senate committee; Senate-passed; House committee; Version index; Final law.

Compare the published text versions in the official text index. A change is not attributed to a specific amendment here without a verified record.

Eligible research businesses can receive larger credits, and the limited refund provision can benefit qualifying businesses without tax liability. Businesses that used the equipment exemption lose that particular option. Documentation, transition-period choices and credit limits still matter. The act does not prove that the incentive pays for itself or guarantee additional jobs or research. Final law.

The May 10 fiscal note estimates a $247.9 million reduction in general-revenue-related funds for fiscal 2026–27: $1.2 million in 2026 and $246.7 million in 2027. The estimated reduction is $1.0838 billion for 2028–29, with $684.3 million in 2030. The estimate nets the earlier repeal of the sales-tax exemption against the new credit and excludes old-credit carryforward costs that would occur anyway. It anticipates no local fiscal implication. The April 9 note has the same amounts. These are estimates, not measured results; the final act’s report-due-date rule and asset-transfer exception are more precise than the fiscal note’s shorthand. Later fiscal note; Introduced fiscal note; Final law.