TITLE: Relating to a franchise tax credit for taxable entities that make certain employer child-care contributions and a study on access to and availability of child care in this state.

SUMMARY: Relating to a franchise tax credit for taxable entities that make certain employer child-care contributions and a study on access to and availability of child care in this state.

FULL TEXT:
AN ACT relating to a franchise tax credit for taxable entities that make certain employer child-care contributions and a study on access to and availability of child care in this state. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Chapter 171, Tax Code, is amended by adding Subchapter N-1 to read as follows: SUBCHAPTER N-1. TAX CREDIT FOR CHILD-CARE CONTRIBUTION Sec. 171.721. DEFINITION. (a) Subject to Subsection (b), in this subchapter, "child-care contribution" means the dollar amount of a contribution made by a taxable entity on behalf of an employee of the entity who is based in this state: (1) to a dependent care flexible spending account of the employee; (2) in accordance with the requirements of a qualified child-care expenditure under 26 U.S.C. Section 45F(c) that is paid or incurred in relation to a qualified child-care facility, as defined by that subsection, that is located in this state; or (3) in accordance with rules adopted by the comptroller. (b) The term "child-care contribution" does not include salary or wages paid by the taxable entity to the employee for the employee's service. Sec. 171.722. ENTITLEMENT TO CREDIT. A taxable entity is entitled to a credit in the amount and under the conditions provided by this subchapter against the tax imposed under this chapter. Sec. 171.723. QUALIFICATION. A taxable entity qualifies for a credit under this subchapter if the taxable entity subsidizes at least $1,200 of the annual cost incurred by an employee of the entity to obtain child care at: (1) a child-care facility licensed under Chapter 42, Human Resources Code; or (2) a family home registered or listed under Chapter 42, Human Resources Code. Sec. 171.724. AMOUNT OF CREDIT; LIMITATION. (a) Subject to Subsections (b), (c), and (d), the amount of the credit a taxable entity may claim on a report is equal to the total amount of child-care contributions paid by the entity during the period on which the report is based. (b) For purposes of calculating the total amount of child-care contributions paid by a taxable entity under Subsection (a): (1) the total amount of child-care contributions paid by the entity may not exceed $3,600 multiplied by the number of children for whom the entity makes a child-care contribution during the period described by that subsection; and (2) a child who is the child of more than one employee of the taxable entity may only be included once when performing the calculation prescribed by Subdivision (1). (c) The total credit claimed on a report, including the amount of any carryforward under Section 171.725, may not exceed the amount of franchise tax due for the report after applying all other applicable credits. (d) Except as provided by Section 171.728, the total amount of credits that may be awarded under Subsection (a) in a state fiscal year may not exceed $25 million. (e) The comptroller by rule shall prescribe procedures by which the comptroller will allocate the amount of credits available under Subsection (d). The procedures must provide that credits are allocated to taxable entities that applied for the credit on a pro rata basis. Sec. 171.725. CARRYFORWARD. (a) If a taxable entity is eligible for a credit that exceeds the limitation under Section 171.724(c), the entity may carry the unused credit forward for not more than five consecutive reports. (b) A carryforward is considered the remaining portion of a credit that cannot be claimed on a report because of the limitation under Section 171.724(c). (c) Credits, including a carryforward, are considered to be used in the following order: (1) a carryforward under this section; and (2) a credit for the period on which the report is based. Sec. 171.726. APPLICATION FOR CREDIT. (a) A taxable entity must apply for a credit under this subchapter in the manner prescribed by the comptroller and include with the application any information requested by the comptroller to determine whether the entity is eligible for the credit under this subchapter. (b) The comptroller may award a credit to a taxable entity that applies for the credit under Subsection (a) if the taxable entity is eligible for the credit. The comptroller has discretion in determining whether to grant or deny an application for a credit. The award or denial of a credit under this subchapter and the amount of any credit awarded is not a contested case under Chapter 2001, Government Code. (c) The comptroller shall notify a taxable entity in writing of the comptroller's decision to grant or deny the application submitted under Subsection (a). If the comptroller denies a taxable entity's application, the comptroller shall include in the notice of denial the reasons for the comptroller's decision. (d) The comptroller may elect to award a credit under this subchapter to a taxable entity by issuing a refund warrant to the entity in lieu of awarding a credit against the tax due on the entity's report in the manner provided by this subsection. The comptroller may not issue a refund warrant in an amount that exceeds the limitation prescribed by Section 171.724(c). If a taxable entity that is issued a refund warrant under this subsection is eligible for an amount of credit that exceeds the limitation prescribed by Section 171.724(c), that remaining portion of the credit is considered a carryforward under Section 171.725. A refund warrant issued by the comptroller under this subsection does not accrue interest under Section 111.064. (e) The comptroller by rule may: (1) prescribe the form to be used to apply for a credit under this subchapter; and (2) establish an enrollment period with application deadlines during which an application for a credit under this subchapter must be submitted. Sec. 171.727. SALE OR ASSIGNMENT OF CREDIT. (a) A taxable entity that makes a child-care contribution may sell or assign all or part of the credit that may be claimed for that contribution to one or more taxable entities, and any taxable entity to which all or part of the credit is sold or assigned may sell or assign all or part of the credit to another taxable entity. There is no limit on the total number of transactions for the sale or assignment of all or part of the total credit authorized under this subchapter. (b) A taxable entity that sells or assigns a credit under this section and the taxable entity to which the credit is sold or assigned shall jointly submit written notice of the sale or assignment to the comptroller not later than the 30th day after the date of the sale or assignment. The notice must include: (1) the date on which the credit was originally established; (2) the date of the sale or assignment; (3) the amount of the credit sold or assigned and the remaining period during which it may be used; (4) the names, addresses, and federal tax identification numbers of the taxable entity that sold or assigned the credit or part of the credit and the taxable entity to which the credit or part of the credit was sold or assigned; and (5) the amount of the credit owned by the selling or assigning taxable entity before the sale or assignment, and the amount the selling or assigning taxable entity retained, if any, after the sale or assignment. (c) The sale or assignment of a credit in accordance with this section does not extend the period for which a credit may be carried forward and does not increase the total amount of the credit that may be claimed. (d) After a taxable entity claims a credit for a child-care contribution under this subchapter, another entity may not use the same expenditure as the basis for another credit. Sec. 171.728. ASSESSMENT OF IMPROPERLY AWARDED CREDIT; ADDITIONAL USE. (a) If the comptroller determines that a taxable entity was improperly awarded a credit under this subchapter, the comptroller may assess the amount of the improperly awarded credit against the taxable entity that was originally awarded the credit, regardless of whether that taxable entity has sold or assigned the credit in accordance with Section 171.727. (b) After the taxable entity has exhausted all available administrative and judicial remedies in relation to the assessment under Subsection (a), the comptroller may use any money recovered through an assessment under that subsection to: (1) increase the total amount of credit that may be awarded during the next state fiscal year under Section 171.724(d); (2) administer the credit under this subchapter; or (3) return the money to the state treasury. Sec. 171.729. RULES. The comptroller shall adopt rules necessary to implement and administer this subchapter. SECTION 2. (a) The Texas Workforce Commission shall conduct a study to examine strategies that may increase access to and availability of child care among families in this state, including strategies that engage employers in child-care solutions available to their employees. (b) Not later than December 31, 2026, the Texas Workforce Commission shall issue a report on the findings of the study conducted under Subsection (a) of this section to the governor, the lieutenant governor, the speaker of the house of representatives, and each legislative standing committee with jurisdiction over child-care facilities. SECTION 3. Subchapter N-1, Chapter 171, Tax Code, as added by this Act, applies only to a report originally due on or after January 1, 2027. SECTION 4. This Act takes effect January 1, 2026.