| (a) Effective dates.
(1) A corporation may claim a research and development credit,
a jobs creation credit, or an investment credit only for expenses and payments
that the corporation has incurred, qualified investments or expenditures that
the corporation made, or new jobs that the corporation has created in Texas
on or after January 1, 2000.
(2) These credits expire on December 31, 2009. This expiration
does not affect the carryforward or installment of a credit that was established
on a report that was due before this expiration date.
(b) Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1) "Agricultural processing" means activities that are described
in the 1987 Standard Industrial Classification Manual, categories 2011-2099,
2211, 2231, or 3111-3199, which the federal Office of Management and Budget
publishes. Examples include manufacturing or processing foods and beverages
for human consumption; weaving cotton and wool fabrics; and tanning, currying,
or finishing leather and leather products.
(2) "Base amount," "basic research payment," and "qualified
research expense" have the meanings that Internal Revenue Code, §41 assigns
to those terms, except that all such payments and expenses must be for research
that is conducted within this state. Qualified research expenses include expenses
for research that the taxpayer performs, including wages for employees involved
in the research activity, costs of supplies that are used in research, and
payments to others for the use of computer time in qualified research. In
addition, qualified research expenses include a portion of the expenses for
research that other parties perform on behalf of the taxpayer. Basic research
payments include payments to qualified university or scientific organizations
for research to advance scientific knowledge that does not have a specific
commercial objective.
(3) "Central administrative offices" means an establishment
that is primarily engaged in the performance of management or support services
for other establishments of the same enterprise. An enterprise consists of
all establishments that have more than 50% common direct or indirect ownership.
(4) "County average weekly wage" means the average weekly wage
for all covered employment in the county as computed based on quarterly data
from the Texas Workforce Commission.
(5) "Data processing" means activities that are described in
the 1987 Standard Industrial Classification Manual, categories 7371-7379,
which the federal Office of Management and Budget publishes. Examples include
computer programming, data processing, and other computer related services.
(6) "Distribution" means activities that are described in the
1987 Standard Industrial Classification Manual, categories 5012-5199, which
the federal Office of Management and Budget publishes. Examples include the
wholesale distribution of durable and nondurable goods, such as motor vehicles,
furniture, lumber and other construction materials, professional and commercial
equipment, electrical goods, hardware, plumbing and heating equipment, paper
and paper products, apparel, and groceries.
(7) "Group health benefit plan" means:
(A) a health plan that a health maintenance organization that
is established under the Texas Health Maintenance Organization Act (Tex. Ins.
Code, Chapter 20A) provides;
(B) a health benefit plan that the commissioner of insurance
has approved; or
(C) a self-funded or self-insured employee welfare benefit
plan that provides health benefits and is established in accordance with the
Employee Retirement Income Security Act of 1974 (29 U.S.C. §1001 et seq.),
as amended.
(8) "Manufacturing" means activities that are described in
the 1987 Standard Industrial Classification Manual, categories 2011-3999,
which the federal Office of Management and Budget publishes.
(9) "Qualified business" means an establishment that is a central
administrative office or that is primarily engaged in agricultural processing,
distribution, data processing, manufacturing, research and development, or
warehousing. An establishment is a single physical location at which business
is conducted or services or industrial operations are performed.
(10) "Qualified capital investment" means tangible personal
property that is: described in Internal Revenue Code, §1245(a), such
as engines, machinery, tools, and implements that are used in a trade or business,
or are held for investment and are subject to an allowance for depreciation,
cost recovery under the accelerated cost recovery system, or amortization;
and first placed in service in a strategic investment area, or in a Texas
county that has a population of less than 50,000, by a corporation that is
primarily engaged in agricultural processing. The term does not include real
property or buildings and their structural components. Property that is leased
under a capitalized lease is considered a "qualified capital investment,"
but property that is leased under an operating lease is not considered a "qualified
capital investment." Property that is expensed under Internal Revenue Code, §179,
is not considered a "qualified capital investment." "First placed in service"
means the first use of the property by the taxpayer. The property may have
been previously used by another taxpayer.
(11) "Qualifying job" means a new permanent full-time job that:
(A) is located in:
(i) a strategic investment area; or
(ii) a Texas county that has a population of less than 50,000,
if a business that is primarily engaged in agricultural processing creates
the job;
(B) requires at least 1,600 hours of work a year;
(C) pays at least 110% of the county average weekly wage for
the county where the job is located;
(D) is covered by a group health benefit plan for which the
business pays at least 80% of the premiums for basic coverage or other charges
that are assessed under the plan for the employee;
(E) is not transferred from one area in Texas to another area
in Texas; and
(F) is not created to replace a job that was previously held
by another employee.
(12) "Research and development," for the purposes of determining
whether an establishment constitutes a "qualified business" for the jobs creation
credit and the investment credit, means activities that are described in the
1987 Standard Industrial Classification Manual, category 8731, which the federal
Office of Management and Budget publishes. These activities are commercial
physical and biological research and development activities that are provided
on a contract or fee basis.
(13) "Strategic investment area" means an area that the comptroller
has determined under Tax Code, §171.726, is:
(A) a Texas county that has above state average unemployment,
but below state average per capita income; or
(B) an area in Texas that is a federally designated urban enterprise
community or urban enhanced enterprise community.
(14) "Warehousing" means activities that are described in the
1987 Standard Industrial Classification Manual, categories 4221-4226, which
the federal Office of Management and Budget publishes. Examples include public
warehousing and storage.
(c) Strategic Investment Areas. The comptroller will determine
areas that qualify as strategic investment areas not later than October 1
of each year and will publish a list and map of the designated areas. The
designation is effective for the following calendar year for purposes of credits
that are available under this section. If at the time that the expenditures
were made, they were made in a strategic investment area, then the expenditures
will be considered in computation of the credits that this section provides,
even if the strategic investment area subsequently loses its designation as
a strategic investment area.
(d) Information required. A corporation that claims a credit
under this section must submit all information that the comptroller requires.
(e) Limitations.
(1) The total research and development, jobs creation, and
investment credits that a corporation claims, including the amount of any
credit that the corporation carries forward from previous reports, may not
exceed the amount of franchise tax due for the report after any other applicable
credits.
(2) A corporation that establishes its eligibility for a research
and development credit is not eligible to establish a jobs creation credit
for the same report.
(3) A corporation may not convey, assign, or transfer to another
entity the credits that this section provides, unless all of the assets of
the corporation are conveyed, assigned, or transferred to the entity in the
same transaction.
(f) Period used. The corporation must use the period upon which
earned surplus is based to determine which expenditure will be considered
in computing the credits that this section provides, even if the tax that
is due on taxable capital exceeds the tax that is due on net taxable earned
surplus.
(g) Research and development credit.
(1) Calculation of credit.
(A) The credit for any report equals 5.0% (4.0% for reports
that are originally due before January 1, 2002) of the sum of:
(i) the amount of qualified research expenses that a corporation
incurs in Texas during the period upon which net taxable earned surplus is
based in excess of the base amount for Texas (alternatively, 16% may be used
as the Texas fixed base percentage); and
(ii) the basic research payments that are determined under
Internal Revenue Code, §41(e)(1)(A), for Texas during the period upon
which net taxable earned surplus is based.
(B) A corporation may elect to compute the credit for qualified
research expenses that the corporation has incurred in Texas in a manner that
is consistent with the alternative incremental credit that is described in
Internal Revenue Code, §41(c)(4), but only if for the corresponding federal
tax period:
(i) a federal election was made to compute the federal credit
under Internal Revenue Code, §41(c)(4);
(ii) the corporation was a member of a consolidated group for
which a federal election was made under Internal Revenue Code, §41(c)(4);
or
(iii) the corporation did not claim the federal credit under
Internal Revenue Code, §41(a)(1).
(C) For purposes of the alternate credit computation method
in subparagraph (B) of this paragraph, the credit percentages that apply to
qualified research expenses that are described in Internal Revenue Code, §41(c)(4)(A)(i),
(ii), and (iii), are 0.41%, 0.55%, and 0.69%, respectively (or 0. 33%, 0.44%,
and 0.55%, respectively, for reports that are due before January 1, 2002).
(D) In computing the credit under this subsection, a corporation
may multiply by two (or by 1.5 for reports that are originally due before
January 1, 2002) the amount of any qualified research expenses and basic research
payments that are made in a strategic investment area.
(E) The corporation bears the burden of establishing entitlement
to, and the value of, a credit.
(F) For the purposes of calculating the research and development
credit, "gross receipts," as used in Internal Revenue Code, §41, means
gross receipts as determined under Tax Code, §171.1032.
(2) Report limitation. The total research and development credit
that a corporation may claim for a report, including the amount of any carryforward
credit under paragraph (3) of this subsection, may not exceed 50% (or 25%
for reports that are due before January 1, 2002) of the amount of franchise
tax that is due for the report before any other tax credits are applied.
(3) Carryforward. If a corporation is eligible for a credit
that exceeds the limitations that are stated in subsection (e)(1) of this
section or paragraph (2) of this subsection, then the corporation may carry
the unused credit forward for not more than 20 consecutive reports. A credit
carryforward from a previous report must be used before the current year credit.
(h) Jobs creation credit.
(1) Eligibility. A corporation is eligible for a jobs creation
credit if the corporation:
(A) is a qualified business;
(B) creates a minimum of 10 qualifying jobs during the period
upon which net taxable earned surplus is based; and
(C) pays an average weekly wage of at least 110% of the county
average weekly wage for the county where the qualifying jobs are located.
(2) Calculation of credit. A corporation may establish a credit
that equals 25% of the total wages and salaries that the corporation has paid
for qualifying jobs during the period upon which net taxable earned surplus
is based.
(3) Length of credit. A corporation shall claim the credit
established in five equal installments of one-fifth the credit amount over
the five consecutive reports beginning with the report based upon, for determining
net taxable earned surplus, the period during which the corporation created
qualifying jobs.
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