Texas Enacts Law to Enhance R&D Tax Credit

Texas has taken important steps to foster innovation and economic growth by extending and enhancing its research and development (R&D) franchise tax credit. S.B. 2206, which Gov. Greg Abbott signed into law June 17, introduces key changes to the state’s R&D tax incentive program. 


Key Takeaways for Businesses

  • Extended Incentive: The R&D franchise tax credit, previously set to expire December 31, 2026, is now extended indefinitely, providing long-term support for R&D investment in Texas. S.B. 2206 does not specify an expiration date for the credit.
  • Increased Credit Value: The credit increases from 5% of qualified R&D expenses to 8.722%, with an even higher rate of 10.903% for research in partnership with Texas higher education institutions.
  • Simplified Calculation: The definition of the term “qualified research expense” now aligns with federal Form 6765, “Credit for Increasing Research Activities,” streamlining the claim process.
  • Focus on Franchise Tax Credit: The sales and use tax exemption for some property used in R&D activities under Texas Tax Code Section 151.3182 is repealed effective January 1, 2026. Taxpayers no longer need to choose between the franchise tax credit and the sales tax exemption.
  • Refund Potential: Businesses with no franchise tax due may be eligible for a refundable credit.


Benefits

The legislation is expected to stimulate R&D investment, create high-paying jobs, and strengthen Texas’s position as a leader in technology and innovation.

BDO Insights

  • The legislation updates Texas’s credit to align with federal rules and guidance. 
  • Businesses engaged in R&D activities in Texas should review the new requirements to maximize their tax benefits under the enhanced program.

Please visit BDO’s Business Incentives & Tax Credits and State & Local Tax Services pages for more information on how BDO can help.