Texas Administrative Code › Title 34 - PUBLIC FINANCE › Part 1 - COMPTROLLER OF PUBLIC ACCOUNTS › Chapter 3 - TAX ADMINISTRATION › Subchapter O - STATE AND LOCAL SALES AND USE TAXES › Section 3.340 - Qualified Research

Current through Reg. 49, No. 28; July 12, 2024
(a) Definitions.
				  The following words and terms, when used in this section, shall have the
				  following meanings, unless the context clearly indicates otherwise.
(1) Business component--A business component
				  is any product, process, computer software, technique, formula, or invention,
				  which is to be held for sale, lease, or license, or used by the taxpayer in a
				  trade or business of the taxpayer.
(2) Combined group--Taxable entities that are
				  part of an affiliated group engaged in a unitary business and that are required
				  to file a combined group report under Tax Code, §
											171.1014
				  (Combined Reporting; Affiliated Group Engaged in Unitary Business). For more
				  information about combined groups, see §
											3.590
				  of this title (relating to Margin: Combined Reporting).
(3) Directly used in qualified
				  research--Having an immediate use in qualified research activity, without an
				  intervening or ancillary use.
(4)
				  Four-Part Test--The test described in IRC, §41(d) (Qualified research
				  defined) that determines whether research activities are qualified research.
				  The four parts of the test are the Section 174 Test, the Discovering
				  Technological Information Test, the Business Component Test, and the Process of
				  Experimentation Test.
(5) Franchise
				  tax research and development activities credit--A credit against franchise tax
				  for qualified research activities that is allowed under Tax Code, Chapter 171,
				  Subchapter M (Tax Credit for Certain Research and Development
				  Activities).
(6) Internal Revenue
				  Code (IRC)--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 the code applicable to the tax year to which the
				  provisions of the code in effect on that date applied. A regulation adopted
				  after December 31, 2011 is only included in this term to the extent that a
				  taxpayer could have applied the regulation to the 2011 federal income tax year.
				  Examples of treasury regulations included in this definition are:
(A) Treasury Regulation, §1.174-2
				  (Definition of research and experimental expenditures) as contained in 26 CFR
				  part 1 (revised as of July 21, 2014);
(B) Treasury Regulation, §1.41-4
				  (Qualified research for expenditures paid or incurred in taxable years ending
				  on or after December 31, 2003) as contained in 26 CFR part 1 (revised as of
				  November 3, 2016), except for paragraph (c)(6) (Internal use software). For
				  paragraph (c)(6), as provided in the last sentence of Treasury Regulation,
				  §1.41-4 (e) (Effective/applicability dates), taxpayers may elect to follow
				  either of the following versions of paragraph (c)(6):
(i) Treasury Regulation, §1.41-4(c)(6)
				  (Internal-use computer software) as contained in 26 CFR part 1 (revised as of
				  April 1, 2003) and IRB 2001-5; or
(ii) Proposed Treasury Regulation,
				  §1.41-4(c)(6) (Internal use software for taxable years beginning on or
				  after the December 31, 1985) as contained in IRB 2002-4.
(7) Qualified research--This term
				  has the meaning given in IRC, §41(d), except that the research must be
				  conducted in Texas. Qualified research activities must satisfy each part of the
				  Four-Part Test.
(8) Registrant--A
				  taxpayer who holds a Texas Qualified Research Registration Number issued by the
				  comptroller.
(9) Registration
				  number--The Texas Qualified Research Registration Number issued by the
				  comptroller to a taxpayer who submits the Texas Registration for Qualified
				  Research and Development Sales Tax Exemption form.
(10) Taxable entity--This term has the
				  meaning given by Tax Code, §
											171.0002
				  (Definition of Taxable Entity).