Texas Research and Development Tax Credit Summary

Beginning with tax returns filed after January 1st, 2014 (for tax years ended in 2013), Taxpayers in Texas can claim the R&D Tax Credit to offset a portion of their franchise tax or use it towards a sales and use tax exemption on the purchase or lease of depreciable tangible personal property used in qualified research in Texas. Some highlights of the Texas R&D Tax Credit include:

  • Qualified Research Expenses (QREs) have the same meaning as in IRC § 41, except that such expenses must be for research conducted within Texas.
  • The credit amount is 5% of the excess amount of qualified research expenses in the current period over the base amount (50% of the average of the previous three years).
  • The allowable Franchise Tax Credit in any one period, including carryforward amounts, can not exceed 50% of the franchise tax due for the period.
  • Unused credits can be carried forward for up-to 20 years.
  • The sales and use tax exemption will be effective for activities beginning after January 1st, 2014.

Texas R&D Tax Credit Case Study

An Austin, Texas based software developer began operations in 2006. The Company has steadily increased its research expenditures primarily through the addition of both experienced and inexperienced developers. The client has been claiming the federal R&D Tax Credit since 2009 and the Texas R&D Tax Credit beginning for tax year ended December 31, 2013.

  
FEDERAL
 
TEXAS
Year
Total QREs
Credit
Total QREs
Credit
2014
$750,000
$75,000
$750,000
$24,583
2013
650,000
65,000
650,000
22,500
2012
500,000
50,000
500,000
NA
2011
400,000
40,000
400,000
NA
     
Total $2,300,000$230,000 $2,300,000$47,083