Texas – New Sales Tax Exemption or Franchise Tax Credit for Qualified Technology Research Beginning January 1, 2014

SALT Report 3207 –A new Texas law (H.B. No. 800) allows eligible taxpayers “engaged in qualified research [a choice between] a sales tax exemption…or a franchise tax credit…beginning January 1, 2014.”  Taxpayer must also be “registered with the Comptroller’s office [to claim either an exemption or credit].”

To qualify for an exemption or credit, the “research must be undertaken for discovering information that is technological in nature, and its application must be intended for use in developing a new or improved business component of the person undertaking the research.  Substantially all of the activities of the research must be elements of a process of experimentation relating to a new or improved function, performance, reliability or quality.” Qualified research is defined “under the Internal Revenue Code Section 41(d) and includes research for which expenditures can be treated as expenses under Internal Revenue Code Section 174.”

To claim an exemption, taxpayers must give “a signed and properly completed Texas Qualified Research Sales and Use Tax Exemption Certificate (Form 01-931) (Qualified Research Exemption Certificate) to the retailer when claiming an exemption on eligible items purchased for use directly in qualified research.”

Taxpayers claiming an exemption are also required to “file an Annual Information Report (AIR) with the Comptroller’s office on or before March 31 of the year immediately following the calendar year in which they claimed the sales tax exemption.”  Filing an Annual Information Report “allows registrants to renew their Registration Number and to provide information required to be reported by the Comptroller to the Texas legislature.”

For Further Information:

H.B. No. 800

http://www.window.state.tx.us/taxinfo/qualified_research/