HBA-RAR H.B. 755 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 755 By: Williams Ways & Means 3/3/1999 Introduced BACKGROUND AND PURPOSE H.B. 755 establishes a franchise tax credit for certain research and development (R&D) conducted in Texas. This bill offers a 10 percent credit on research spending in six designated areas: advanced computing (including hardware, software, and peripherals), advanced materials, biotechnology, electronic devices, environmental technology, and medical devices. H.B. 755 uses federal definitions of research and the federal incremental computation method, which limits the credit to basic scientific pre-production research and the annual increase in research spending, respectively. 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 of the State of Texas in SECTION 1 (Section 171.789, Tax Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 171, Tax Code, by adding Subchapter Q, as follows: SUBCHAPTER Q. CREDITS AND BUSINESS LOSS CARRYOVERS FOR CERTAIN RESEARCH AND DEVELOPMENT ACTIVITIES Sec. 171.781. DEFINITIONS. Defines "advanced computing technology," "advanced materials technology," "base amount," "biotechnology," "electronic device technology," "environmental technology," and "medical device technology." Sec. 171.782. ENTITLEMENT. Provides that a corporation is entitled to a credit in the amount and under the conditions and limitations provided by this subchapter, against the tax imposed under this chapter. Sec. 171.783. AMOUNT OF CREDIT. (a) Establishes that the credit for any privilege period equals 10 percent of the sum of the amount by which the qualified research expenses in this state exceed the base amount for this state and the basic research payments determined under Section 41(e)(1)(A), Internal Revenue Code (Credit for Increasing Research Activities), for this state. (b) Requires that the base amount and any other amount used to calculate the credit be multiplied by a ratio of the number of days in the corporation's accounting year that are also in the privilege period and the number of days of the privilege period, if the accounting year does not correspond to the privilege period. Sec. 171.784. EXPENSES AND PAYMENTS IN CERTAIN FIELDS OF TECHNOLOGY. Sets forth the qualified research expenses and basic research payments authorized to be included in determining the amount of the credit under Section 171.783, as follows: (1) advanced computing technology; (2) advanced materials technology; (3) biotechnology; (4) electronic device technology; (5) environmental technology; and (6) medical device technology. Sec. 171.785. LIMITATION. Prohibits the total tax credit claimed under this subchapter from reducing the tax for the privilege period below zero. Sec. 171.786. CARRYOVER OF CREDIT. Authorizes a corporation to carry a credit forward for up to 15 consecutive privilege periods. Sec. 171.787. BUSINESS LOSS CARRYOVER. Authorizes a corporation that had a net business loss for a privilege period to carry the loss forward for up to 15 consecutive periods if during the privilege period the corporation incurred or paid qualified research expenses for research conducted in this state and the qualified research expenses were in the fields specified in Section 171.784 of this bill, regardless of the provisions of Section 171.110(e), Tax Code (Determination of Net Taxable Earned Surplus). Sec. 171.788. SALE OF UNUSED CREDIT OR BUSINESS LOSS. (a) Authorizes a corporation that has an unused credit under this subchapter or an unused business loss described by Section 171.787, to apply to the Comptroller of Public Accounts of the State of Texas (comptroller) to sell the credit or business loss to another corporation. Provides that the acquiring corporation must apply to the comptroller to purchase an unused credit or an unused business loss. (b) Requires the comptroller to review applications under this section and prohibits the comptroller from approving the sale or purchase of an unused credit under this subchapter or an unused business loss described by Section 171.787, unless the comptroller determines that: (1) the credit or loss is being purchased for money or financial assistance in an amount equal to at least 75 percent of its value; (2) there is an agreement between the seller and purchaser specifying the means and amount of payment or financial assistance; and (3) the payment or financial assistance will be used to fund expenses incurred in connection with the operation of new or expanding emerging technology in the fields specified by Section 171.784, including expenses relating to the acquisition and development of real estate or other fixed assets, materials, start-up, tenant fit-out, working capital, salaries, and research and development. Sec. 171.789. RULES. Requires the comptroller to adopt rules necessary to implement this subchapter. SECTION 2. Effective date: January 1, 2000. Makes application of this Act prospective. SECTION 3. Emergency clause.