HBA-JRA S.B. 5 76(R)    BILL ANALYSIS


Office of House Bill AnalysisS.B. 5
By: Sibley
Ways & Means
5/4/1999
Engrossed



BACKGROUND AND PURPOSE 

Currently, Texas does not offer a research and development (R&D) tax
credit.  Texas also lacks a job creation or capital investment franchise
tax credit that targets economically distressed counties. S.B. 5 authorizes
a corporation to claim a franchise tax credit on any increases in R&D
expenses and payments incurred made in Texas after a specific base period.
This bill also provides a franchise tax credit to corporations that create
new high-wage jobs or make qualified investments in machinery and equipment
in economically distressed counties. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that rulemaking
authority is expressly delegated to the Texas Comptroller of Public
Accounts in SECTIONS 1, 2, and 3 (Sections 171.728, 171.760, and 171.810,
Tax Code) of this bill. 

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Chapter 171, Tax Code, by adding Subchapter O, as follows:

SUBCHAPTER O.  TAX  CREDIT FOR CERTAIN RESEARCH AND DEVELOPMENT ACTIVITIES

Sec.  171.721.  DEFINITIONS.  Defines "base amount," "basic research
payment," "qualified research expense," and  "strategic investment area." 

Sec.  171.722.  New title:  ELIGIBILITY.   Provides that a corporation is
eligible for a franchise tax credit in the amount and under the conditions
and limitations provided by this subchapter.  Authorizes a corporation to
claim a credit under Section 171.723(b) or take a carryforward credit
without regard to whether the strategic investment area in which it made
qualified research expenses and basic research payments subsequently loses
its designation as a strategic investment area.  

Sec.  171.723.  CALCULATION OF CREDIT.  Sets forth the method for
calculating the credit for any report.  Authorizes a corporation to double
the amount of any qualified research expenses and basic research payments
made in a strategic investment area as determined by the comptroller of
public accounts (comptroller) under Section 171.726. Provides that the
burden of establishing entitlement to and the value of the credit is on the
corporation.   

Sec.  171.724.  LIMITATIONS.  Prohibits the total credit claimed under this
subchapter for a report from exceeding 25 percent of the amount of
franchise tax due for the report before any other applicable tax credits.
Prohibits the total credit claimed under Subchapters O, P, and Q for a
report from exceeding the amount of franchise tax due for the report after
any other credits.  Provides that a corporation that establishes its
eligibility for a credit under this subchapter is not eligible to establish
a credit under Subchapter P. 

Sec.  171.725. CARRYFORWARD.  Authorizes the corporation to carry the
unused credit forward for not more than 20 consecutive reports, if a
corporation is eligible for a credit that  exceeds the limitation under
Section 171.724.  Provides that a credit carryforward from a previous
report is considered to be utilized before the current year credit. 

Sec.  171.726.  DETERMINATION OF STRATEGIC INVESTMENT AREAS.  Requires the
comptroller to determine strategic investment areas on an annual basis
using the most current available data and to publish a list and map of
strategic investment areas by September 1 of each year.   

Sec.  171.727.  BIENNIAL REPORT TO LEGISLATURE BY COMPTROLLER.  Requires
the comptroller to submit a report containing specific information to the
members of the legislature before the beginning of each regular session of
the legislature.  Requires the final report issued prior to the expiration
of this subchapter to include historical information on the credit
authorized under this subchapter.  Prohibits the comptroller from including
confidential information in the report.  Authorizes the comptroller to
require a corporation that claims a franchise tax credit to submit
information, on a form provided by the comptroller, on the location of the
corporation's research expenses and payments in this state and any other
information necessary to complete the report required under this section. 

Sec.  171.728.  COMPTROLLER POWERS AND DUTIES.    Requires the comptroller
to adopt rules and forms necessary to implement this subchapter. 

Sec.  171.729.  EXPIRATION.  Provides that Subchapter O expires December
31, 2009. Provides that the expiration of this subchapter does not affect
the carryforward of a credit under Section 171.725 for those credits to
which a corporation is eligible before the date this subchapter expires. 

SECTION 2. Amends Chapter 171, Tax Code, by adding Subchapter P, as follows:

SUBCHAPTER P.  TAX CREDITS FOR CERTAIN JOB CREATION ACTIVITIES

Sec.  171.751.  DEFINITIONS.  Defines "agricultural processing," "central
administrative offices," "county average weekly wage," "data processing,"
"distribution," "group health benefit plan," "manufacturing," "qualified
business," "qualifying job," "research and development," "strategic
investment area," and "warehousing." 

Sec.  171.752.  ELIGIBILITY.  Sets forth the conditions under which a
corporation is eligible for a franchise tax credit. Authorizes a
corporation to claim a credit or take a carryforward credit without regard
to whether the county in which it created the qualifying jobs subsequently
loses its designation as a strategic investment area.  

Sec.  171.753.  CALCULATION OF CREDIT.  Sets forth the method for
calculating the credit.   

Sec.  171.754.  LENGTH OF CREDIT.  Requires the credit established to be
claimed in five equal installments of one-fifth the credit amount over the
five consecutive reports beginning with the report based upon the period
during which the qualifying jobs were created. 

Sec.  171.755.  LIMITATIONS.  Prohibits the total credit claimed under this
subchapter for a report from exceeding 50 percent of the amount of
franchise tax due for the report before any other applicable tax credits.
Prohibits the total credit claimed under Subchapters O, P, and Q for a
report from exceeding the amount of franchise tax due for the report after
any other applicable credits. Provides that a corporation that establishes
its eligibility for a credit under this subchapter is not eligible to
establish a credit under Subchapter O. 

Sec.  171.756. CARRYFORWARD.  Authorizes the corporation to carry the
unused credit forward for not more than five consecutive reports, if a
corporation is eligible for a credit that exceeds the limitation under
Section 171.755.  Provides that a carryforward is considered the remaining
portion of an installment that cannot be claimed in the current year
because of the tax limitation under Section 171.755.  Provides that a
carryforward is added to the next  year's installment of the credit in
determining the tax limitation for that year.  Provides that a credit
carryforward from a previous report is considered to be utilized before the
current year credit. 

Sec.  171.757.  CERTIFICATION OF ELIGIBILITY.  Requires the corporation to
file with its report, on a form provided by the comptroller, information
that sufficiently demonstrates that the corporation is eligible for the
credit and is in compliance with Section 171.752, for the initial and each
succeeding report in which a credit is claimed.  Provides that the burden
of establishing entitlement to and the value of the credit is on the
corporation.  Sets forth the condition under which the credit expires.
Authorizes the corporation to take the portion of an installment that
accrued in a previous year and was carried forward to the extent permitted
under Section 171.756. 

Sec.  171.758.  ASSIGNMENT PROHIBITED.  Prohibits a corporation from
conveying, assigning, or transferring the credit allowed under this
subchapter to another entity unless all of the assets of the corporation
are conveyed, assigned, or transferred in the same transaction. 

Sec.  171.759.  BIENNIAL REPORT TO LEGISLATURE BY COMPTROLLER.  Requires
the comptroller to submit a report containing specific information to the
members of the legislature before the beginning of each regular session of
the legislature.  Requires the final report issued prior to the expiration
of this subchapter to include historical information on the credit
authorized under this subchapter.  Prohibits the comptroller from including
confidential information in the report.  Authorizes the comptroller to
require a corporation that claims a credit under this subchapter to submit
information, on a form provided by the comptroller, on the location of the
corporation's job creation in this state and any other information
necessary to complete the report required under this section. 

Sec.  171.760.  COMPTROLLER POWERS AND DUTIES.  Requires the comptroller to
adopt rules and forms necessary to implement this subchapter. 

Sec.  171.761.  EXPIRATION.  Provides that Subchapter P expires December
31, 2009. Provides that the expiration of this subchapter does not affect
the carryforward of a credit under Section 171.756 or those credits for
which a corporation is eligible before the date this subchapter expires. 

SECTION 3. Amends Chapter 171, Tax Code, by adding Subchapter Q, as follows:

SUBCHAPTER Q.  TAX CREDITS FOR CERTAIN CAPITAL INVESTMENTS.

Sec.  171.801.  DEFINITIONS.  Defines "agricultural processing," "central
administrative offices," "county average weekly wage," "distribution,"
"data processing," "manufacturing," "qualified business,"  "research and
development," "warehousing," "capitalized lease," "qualified capital
investment," and "strategic investment area." 

Sec.  171.802.  ELIGIBILITY.  Provides that a corporation is eligible for a
franchise tax credit in the amount and under the conditions and limitations
provided by this subchapter. Sets forth the conditions under which a
corporation is eligible for a credit. Authorizes a corporation to claim a
credit or take a carryforward credit without regard to whether the county
in which it made the qualified capital investment subsequently loses its
designation as a strategic investment area.  

Sec.  171.803.  CALCULATION OF CREDIT.  Sets forth the method for
calculating the credit.   

Sec.  171.804.  LENGTH OF CREDIT.  Requires the credit established to be
claimed in five equal installments of one-fifth the credit amount over the
five consecutive reports beginning with the report based upon the period
during which the qualified capital investment was made. 

 Sec.  171.805.  LIMITATIONS.  Prohibits the total credit claimed under
this subchapter for a report from exceeding 50 percent of the amount of
franchise tax due for the report before any other applicable tax credits.
Prohibits the total credit claimed under Subchapters O, P, and Q for a
report from exceeding the amount of franchise tax due for the report after
any other applicable credits. Provides that a corporation that establishes
its eligibility for a credit under this subchapter is not eligible to claim
a franchise tax reduction authorized under Section 171.1015. 

Sec.  171.806. CARRYFORWARD.  Authorizes the corporation to carry the
unused credit forward for not more than five consecutive reports, if a
corporation is eligible for a credit that exceeds the limitation under
Section 171.805.  Provides that a carryforward is considered the remaining
portion of an installment that cannot be claimed in the current year
because of the tax limitation under Section 171.805.  Provides that a
carryforward is added to the next year's installment of the credit in
determining the tax limitation for that year.  Provides that a credit
carryforward from a previous report is considered to be utilized before the
current year credit. 

Sec.  171.807.  CERTIFICATION OF ELIGIBILITY.  Requires the corporation to
file with its report, on a form provided by the comptroller, information
that sufficiently demonstrates that the corporation is eligible for the
credit and is in compliance with Section 171.802, for the initial and each
succeeding report in which a credit is claimed.  Provides that the burden
of establishing entitlement to and the value of the credit is on the
qualified business.  Sets forth the conditions under which the credit
expires.  Authorizes the corporation to take the portion of an installment
that accrued in a previous year and was carried forward to the extent
permitted under Section 171.806. 

Sec.  171.808.  ASSIGNMENT PROHIBITED.  Prohibits a corporation from
conveying, assigning, or transferring the credit allowed under this
subchapter to another entity unless all of the assets of the corporation
are conveyed, assigned, or transferred in the same transaction. 

Sec.  171.809.  BIENNIAL REPORT TO LEGISLATURE BY COMPTROLLER.  Requires
the comptroller to submit a report containing specific information to the
members of the legislature before the beginning of each regular session of
the legislature.  Requires the final report issued prior to the expiration
of this subchapter to include historical information on the credit
authorized under this subchapter.  Prohibits the comptroller from including
in the report information that is confidential by law.  Authorizes the
comptroller to require a corporation that claims a credit under this
subchapter to submit information, on a form provided by the comptroller, on
the location of the corporation's capital investment in this state and any
other information necessary to complete the report required under this
section. 

Sec.  171.810.  COMPTROLLER POWERS AND DUTIES.  Requires the comptroller to
adopt rules and forms necessary to implement this subchapter. 

Sec.  171.811.  EXPIRATION.  Provides that Subchapter Q expires December
31, 2009. Provides that the expiration of this subchapter does not affect
the carryforward of a credit under Section 171.806 or those credits for
which a corporation is eligible before the date this subchapter expires. 

SECTION 4. Authorizes the comptroller to combine the reports required under
this Act into a single report. 

SECTION 5.  Effective date: January 1, 2000.  
Makes application of this Act prospective. 
  
SECTION 6. Emergency clause.