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.