HBA-JRA H.B. 2730 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 2730 By: Oliveira Ways & Means 4/18/1999 Introduced BACKGROUND AND PURPOSE Currently, Texas does not offer a research and development tax credit. Texas also lacks a job creation or capital investment franchise tax credit that targets economically distressed counties. H.B. 2730 authorizes a corporation to claim a franchise tax credit on any increases in research and development expenses incurred and payments made in Texas after a specific base period. The 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 comptroller of public accounts in SECTIONS 1, 2, and 3 (Sections 171.728, 171.760, and 171.808, 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" in this subchapter. Sec. 171.722. ELIGIBILITY. Provides that a corporation is eligible for a credit against the franchise tax in the amount and under the conditions and limitations provided by this subchapter. Authorizes a corporation to claim a credit pursuant to Section 171.723 or take a carryforward credit without regard to whether the county 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. Provides that the credit for any report equals five percent of the sum of the excess of qualified research expenses incurred in this state during the period upon which the tax is based over the base amount for this state and the basic research payments determined under Section 41(e)(1)(A), Internal Revenue Code, for this state during the period upon which the tax is based. 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 under Section 171.726 in computing the credit. 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, including the amount of any carryforward credit under Section 171.725, from exceeding 50 percent of the amount of net franchise tax due for the report after any other applicable tax credits. Provides that this limitation applies to the cumulative amount of credit, including carryforwards, claimed by the corporation under this chapter for the period upon which the tax is based. Prohibits the amount of the credit from reducing the tax below zero. Provides that a corporation that establishes its eligibility for a credit under this subchapter is not eligible to claim a credit under Subchapter P. Sec. 171.725. CARRYFORWARD. Authorizes a corporation to carry the unused credit forward for not more than five consecutive reports if the corporation is eligible for a credit that exceeds the limitation under Section 171.724. 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 December 31 of each year. Sec. 171.727. BIENNIAL REPORT TO LEGISLATURE BY COMPTROLLER. Requires the comptroller to submit a report to the members of the legislature, before the beginning of each regular session of the legislature. Sets forth the information required to be included in the report. Prohibits the comptroller from including confidential information. 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 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 this subchapter expires December 31, 2007. 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 "county average weekly wage," "central administrative offices," "data processing," "group health benefit plan," "manufacturing," "qualified business," "qualifying job," "research and development," "strategic investment area," and "warehousing and distribution" in this subchapter. Sec. 171.752. ELIGIBILITY. Provides that a corporation is eligible for a credit against the franchise tax if the corporation is a qualified business as defined in Section 171.751, creates a minimum of 10 qualifying jobs in a strategic investment area as determined by the comptroller under Section 171.726, and pays an average weekly wage, for the year in which credits are claimed, of at least 110 percent of the county average weekly wage for the county where the qualifying jobs are located. 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. Provides that a corporation's credit equals 25 percent of the total wages and salaries paid by the corporation for qualifying jobs. Sec. 171.754. LENGTH OF CREDIT. Requires the credit to be taken 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, including the amount of any carryforward credit under Section 171.756, from exceeding the amount of net franchise tax due for the report after any other applicable tax credits. Provides that this limitation applies to the cumulative amount of credit, including carryforwards, claimed by the corporation under this chapter for the period upon which the tax is based. Prohibits the amount of the credit from reducing the tax below zero. Provides that a corporation that establishes its eligibility for a credit under this subchapter is not eligible to claim a credit under Subchapter O. Sec. 171.756. CARRYFORWARD. Authorizes a corporation to carry the unused credit forward for not more than five consecutive reports if the 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, if that total credit is limited under Section 171.755, the carryforward is considered to be utilized before the current year installment. 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 under this subchapter. Provides that the burden of establishing entitlement to and the value of the credit is on the corporation. Provides that, if the number of the corporation's full-time employees falls below the number of full-time employees the corporation had in the year in which the corporation qualified for the credit in one of the five years in which the installment of a credit accrues, the credit expires and the corporation is prohibited from taking any remaining installment of the credit. 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 to the members of the legislature before the beginning of each regular session of the legislature. Sets forth the information required to be included in the report. Prohibits the comptroller from including confidential information. 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 this subchapter expires December 31, 2007. Provides that the expiration of this subchapter does not affect the carryforward of a credit under Section 171.756 or those credits to 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. 171.800. DEFINITIONS. Defines "central administrative offices," "county average weekly wage," "data processing," "manufacturing," "qualified business," "research and development," "warehousing and distribution," "capitalized lease," "qualified capital investment," and "strategic investment area" in this subchapter. Sec. 171.801. ELIGIBILITY. Provides that a corporation is eligible for a credit against the franchise tax in the amount and under the conditions and limitations provided by this subchapter. Provides that, to qualify for the credit authorized under this subchapter, a qualified business must make a minimum $500,000 qualified capital investment in a strategic investment area as determined by the comptroller under Section 171.726 and pay an average weekly wage, at the location with respect to which the credit is claimed, which is at least 110 percent of the county average weekly wage. 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. 171.802. CALCULATION OF CREDIT. Provides that a corporation's credit equals 15 percent of the qualified capital investment. Sec. 171.803. LENGTH OF CREDIT. Requires the credit to be taken 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. 171.804. LIMITATIONS. Prohibits the total credit claimed under this subchapter for a report, including the amount of any carryforward credit under Section 171.805, from exceeding the amount of net franchise tax due for the report after any other applicable tax credits. Provides that this limitation applies to the cumulative amount of credit, including carryforwards, claimed by the corporation under this chapter for the period upon which the tax is based. Prohibits the amount of the credit from reducing the tax below zero. 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, Tax Code. Sec. 171.805. CARRYFORWARD. Authorizes a corporation to carry the unused credit forward for not more than five consecutive reports if the corporation is eligible for a credit that exceeds the limitation under Section 171.804. 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 171.804. 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, if that total credit is limited under Section 171.804, the carryforward is considered to be utilized before the current year installment. Sec. 171.806. 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 171.801 for the initial and each succeeding report in which a credit is claimed under this subchapter. Provides that the burden of establishing entitlement to and the value of the credit is on the qualified business. Provides that if, in one of the five years in which the installment of a credit accrues, the qualified business disposes of the qualified capital investment, takes the qualified capital investment out of service, moves the qualified capital investment out of this state, or fails to pay an average weekly wage as required by Section 171.801, the credit expires under this subchapter and the corporation is prohibited from taking any remaining installment of the credit. 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 171.805. Sec. 171.806. 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. 171.807. BIENNIAL REPORT TO LEGISLATURE BY COMPTROLLER. Requires the comptroller to submit a report to the members of the legislature before the beginning of each regular session of the legislature. Sets forth the information required to be included in the report. 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 capital investment in this state and any other information necessary to complete the report required under this section. Sec. 171.808. COMPTROLLER POWERS AND DUTIES. Requires the comptroller to adopt rules and forms necessary to implement this subchapter. Sec. 171.809. EXPIRATION. Provides that this subchapter expires December 31, 2007. Provides that the expiration of this subchapter does not affect the carryforward of a credit under Section 171.805 or those credits to which a corporation is eligible before the date this subchapter expires. SECTION 4. Authorizes the comptroller of public accounts of the state of Texas to combine the reports required under Subchapters O, P, and Q, Chapter 171, Tax Code, as added by this Act, into a single report. SECTION 5. Effective date: January 1, 2000. Makes application of this Act prospective. SECTION 6. Emergency clause.