TITLE: Relating to a franchise tax credit for research and development activities performed in conjunction with institutions of higher education; authorizing a tax credit.

SUMMARY: Relating to a franchise tax credit for research and development activities performed in conjunction with institutions of higher education; authorizing a tax credit.

FULL TEXT:
AN ACT relating to a franchise tax credit for research and development activities performed in conjunction with institutions of higher education; authorizing a tax credit. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Chapter 171, Tax Code, is amended by adding Subchapter Nto read as follows: SUBCHAPTER N. TAX CREDIT FOR RESEARCH AND DEVELOPMENT ACTIVITIES PERFORMED IN CONJUNCTION WITH INSTITUTIONS OF HIGHER EDUCATION Sec. 171.701. DEFINITIONS. In this subchapter: (1) "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. (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. Sec. 171.702. 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 if the taxable entity contracts with one or more public or private institutions of higher education for the performance of qualified research. Sec. 171.703. AMOUNT OF CREDIT. (a) Subject to Section 171.704, the credit for any report equals 20 percent of the difference between: (1) the total amount of qualified research expenses incurred in this state by the taxable entity under contracts described by Section 171.702 during the period on which the report is based; and (2) 50 percent of the average amount of qualified research expenses incurred in this state by the taxable entity under contracts described by Section 171.702 during the three tax years preceding the period on which the report is based. (b) The burden of establishing entitlement to and the value of the credit is on the taxable entity. Sec. 171.704. LIMITATIONS. (a) Subject to Subsection (b), the total credit claimed under this subchapter for a report, including the amount of any carryforward credit under Section 171.705, may not exceed 50 percent of the amount of franchise tax due for the report before any other applicable tax credits. (b) For each state fiscal year, the total amount of tax credits, including credit carryforwards, that may be claimed by all taxable entities under this subchapter may not exceed $15 million. The comptroller by rule shall prescribe procedures by which the comptroller will allocate credits under this subchapter on a pro rata basis. (c) The comptroller may require a taxable entity to notify the comptroller of the amount the taxable entity intends or expects to claim under this subchapter before the beginning of a state fiscal year or at any other time required by the comptroller. Sec. 171.705. CARRYFORWARD. If a taxable entity is eligible for a credit that exceeds the limitation under Section 171.704, the taxable entity may carry the unused credit forward for not more than 20 consecutive reports. A credit carryforward from a previous report is considered to be used before the current year credit. Sec. 171.706. 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. 171.707. 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. 171.708. RULES. The comptroller shall adopt rules necessary to implement this subchapter. Sec. 171.709. REPORT. Not later than December 1, 2016, and each fourth year thereafter, the comptroller shall conduct a study of the credit under this subchapter and submit a report on the results of the study to the governor and the legislature. The purpose of the study is to determine: (1) if the credit accomplishes the credit's intended purpose; (2) if the credit complies with the intent of the legislature in enacting this subchapter; (3) if the economic benefit of the credit to the state exceeds the amount of tax revenue lost as a result of the credit; and (4) if legislative action is needed to increase the efficiency or effectiveness of any part of the subchapter. SECTION 2. This Act applies only to a report originally due on or after the effective date of this Act. SECTION 3. This Act takes effect January 1, 2014.