Texas R&D Franchise Tax Credit

Why we publish this page

Texas is a large state with many technology and manufacturing businesses, and a new credit is worth knowing about. We have summarized what our notes say and linked to the Comptroller, which is the authority. We have not independently verified every detail, so please treat the table above as a starting point for a conversation with your adviser and not as a statement of the law. If any detail here differs from the Comptroller's guidance, the Comptroller is right.

Eligibility

The credit follows the federal definition of qualified research, so documentation that supports a federal claim is the starting point. Whether a particular entity qualifies is a question for a CPA. In particular, questions about the type of entity, how it is taxed in Texas, whether it has franchise tax due and how the credit is used are specific to each business. Please do not rely on a summary for those questions.

How the agent prepares it

The agent drafts the state figures from the same records and costs used for the federal credit, so the two stay consistent. Your reviewer checks the result. Because the Texas credit is described as tied to the federal form, the evidence, costs and calculations the agent captures for the federal claim are the same ones a Texas figure would draw on. If the federal records are strong, the state figure is easier to support, and if they are thin, both are affected.

A worked example (illustrative)

This scenario is invented. A Texas software company already documents its research for the federal credit. When the state credit becomes relevant, its adviser reviews the Comptroller's guidance and confirms that the company can claim. The agent drafts the state figures from the existing records. The adviser checks them, notes that one cost category needs different treatment under the state rules and adjusts it. The company keeps the state workings with the federal claim pack, so the two can be explained together.

Keeping this page accurate

State rules are updated by the state, and our notes can lag behind. We have not added a last-checked date because we have not yet verified the details against the source, and we would rather say so than imply otherwise. Please check the Comptroller's page before filing, and tell us if you find a difference.

What to do while details are being confirmed

If you think the Texas credit may apply to you, there is useful work to do even before every detail is certain. Make sure your federal documentation is strong, because the Texas credit is described as tied to it. Keep a note of where research work was done and by whom. Talk to your adviser early in the year, not at filing time. And read the Comptroller's guidance when it is published or updated. None of this is wasted if the details change, because good records serve whichever way the rules go.

Thinking about records across states

A business that works in Texas and elsewhere should keep records that show where research work was done. That matters for federal purposes as well as state ones, because the location of work can affect how costs are treated. Keep project records that identify the people involved and where they worked, and keep payroll records that match. If the business grows into new states, the same habit will make each new state credit easier to approach.

Sources

Check the Comptroller's current guidance before filing.

• Texas Comptroller: franchise tax (opens in a new tab)