H.B. No. 800
 
 
 
 
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 USED IN RESEARCH AND
  DEVELOPMENT ACTIVITIES; REPORTING OF ESTIMATES AND EVALUATION. (a)
  In this section:
               (1)  "Depreciable tangible personal property" means
  tangible personal property that:
                     (A)  has a useful life that exceeds one year; and
                     (B)  is subject to depreciation under:
                           (i)  generally accepted accounting
  principles; or
                           (ii)  Section 167 or 168, Internal Revenue
  Code.
               (2)  "Internal Revenue Code" has the meaning assigned
  by Section 171.651.
               (3)  "Qualified research" has the meaning assigned by
  Section 41, Internal Revenue Code.
         (b)  The sale, storage, or use of depreciable tangible
  personal property directly used in qualified research is exempted
  from the taxes imposed by this chapter if the property is sold,
  leased, or rented to, or stored or used 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,
  or use occurs.
         (c)  Before the beginning of each regular session of the
  legislature, the comptroller shall submit to the legislature and
  the governor:
               (1)  an estimate of the total number of persons who
  received exemptions under this section and an estimate of the total
  amount of those exemptions; and
               (2)  an evaluation of the effect of the exemption under
  this section, in combination with the credit authorized by
  Subchapter M, Chapter 171, that is conducted by an independent
  researcher at a center for research authorized by Section 1.005,
  Education Code, on:
                     (A)  the amount of qualified research performed in
  this state;
                     (B)  employment in research and development in
  this state;
                     (C)  economic activity in this state; and
                     (D)  state tax revenues.
         (d)  The comptroller shall require a person who receives an
  exemption under this section to complete a form to provide the
  information necessary for the comptroller to make the evaluation
  required by Subsection (c)(2).  The information provided on the
  form is confidential and not subject to disclosure under Chapter
  552, Government Code.
         (e)  The comptroller shall provide the estimates and
  evaluation required by Subsection (c) as part of the report
  required by Section 403.014, Government Code.
         (f)  This section expires December 31, 2026.
         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)  "Public or private institution of higher
  education" means:
                     (A)  an institution of higher education, as
  defined by Section 61.003, Education Code; or
                     (B)  a private or independent institution of
  higher education, as defined by Section 61.003, Education Code.
               (3)  "Qualified research" has the meaning assigned by
  Section 41, Internal Revenue Code, except that the research must be
  conducted in this state.
               (4)  "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
  Subsections (b), (c), and (d), 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 contracts with one or more public
  or private institutions of higher education for the performance of
  qualified research and the taxable entity has qualified research
  expenses incurred in this state by the taxable entity under the
  contract during the period on which the report is based, the credit
  for the report equals 6.25 percent of the difference between:
               (1)  all 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 all qualified
  research expenses incurred during the three tax periods preceding
  the period on which the report is based, subject to Section 171.655.
         (c)  Except as provided by Subsection (d), 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.
         (d)  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 has qualified research
  expenses incurred in this state by the taxable entity 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 credit for
  the period on which the report is based equals 3.125 percent of all
  qualified research expenses incurred during that period.
         (e)  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) or (b)(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) or (b)(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.
         (f)  The comptroller may adopt rules for determining which
  research expenses are qualified research expenses for purposes of
  Subsection (a) or (b) 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) or (b)(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, and the combined group is the
  taxable entity for purposes of this subchapter.
         (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 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. 171.660.  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.
         Sec. 171.663.  REPORTING OF ESTIMATES AND COLLECTION OF
  INFORMATION. (a) Before the beginning of each regular session of
  the legislature, the comptroller shall submit to the legislature
  and the governor estimates of:
               (1)  the total number of taxable entities that applied
  credits under this subchapter against the tax imposed under this
  chapter;
               (2)  the total amount of those credits; and
               (3)  the total amount of unused credits carried
  forward.
         (b)  The comptroller may require a taxable entity that claims
  a credit under this subchapter to complete a form to provide the
  information necessary for the comptroller to make the evaluations
  required by Section 151.3182.  The information provided on the form
  is confidential and not subject to disclosure under Chapter 552,
  Government Code.
         (c)  The comptroller shall provide the estimates required by
  this section as part of the report required by Section 403.014,
  Government Code.
         Sec. 171.664.  DEPOSIT OF CERTAIN REVENUE. Notwithstanding
  any other law, for each fiscal year, the comptroller must deposit to
  the credit of the property tax relief fund an amount of revenue
  received from the tax imposed under this chapter sufficient to
  offset any decrease in deposits to that fund that results from the
  implementation of this subchapter.
         Sec. 171.665.  EXPIRATION. (a) This subchapter expires
  December 31, 2026.
         (b)  The expiration of this subchapter does not affect the
  carryforward of a credit under Section 171.659 or a credit
  authorized under this subchapter established before the date this
  subchapter expires.
         SECTION 4.  INITIAL REPORTING OF INFORMATION. The
  comptroller of public accounts shall submit the initial estimates
  required by Sections 151.3182(c)(1) and 171.663, Tax Code, as added
  by this Act, before the 84th Regular Legislative Session commences
  in January 2015. Notwithstanding Section 151.3182(c)(2), Tax Code,
  as added by this Act, the comptroller is not required to submit the
  initial evaluation required by that section until January 2017, but
  shall submit that evaluation before the 85th Regular Legislative
  Session commences.
         SECTION 5.  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 6.  APPLICABILITY.  Subchapter M, Chapter 171, Tax
  Code, as added by this Act, applies only to a report originally due
  on or after the effective date of this Act.
         SECTION 7.  EFFECTIVE DATE.  This Act takes effect January 1,
  2014.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 800 was passed by the House on May 2,
  2013, by the following vote:  Yeas 146, Nays 1, 2 present, not
  voting.
 
  ______________________________
  Chief Clerk of the House   
 
 
         I certify that H.B. No. 800 was passed by the Senate on May
  21, 2013, by the following vote:  Yeas 27, Nays 4.
 
  ______________________________
  Secretary of the Senate    
  APPROVED:  _____________________
                     Date          
   
            _____________________
                   Governor