SECTION 3.593. Margin: Franchise Tax Credits

(a) Effective date. The provisions of this section apply to franchise tax reports originally due on or after January 1, 2008, except as otherwise noted.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Research and development credit--A research and development credit established under Tax Code, Chapter 171, Subchapter O, on a franchise tax report originally due prior to January 1, 2008.

(2) Jobs creation credit--A jobs creation credit established under Tax Code, Chapter 171, Subchapter P, on a franchise tax report originally due prior to January 1, 2008.

(3) Investment credit--An investment credit established under Tax Code, Chapter 171, Subchapter Q, on a franchise tax report originally due prior to January 1, 2008 and an investment credit established under Tax Code, Chapter 171, Subchapter Q-1.

(4) Enterprise project--A person designated as an enterprise project under Government Code, Chapter 2303, on or after September 1, 2001, but before January 1, 2005.

(5) Enterprise zone--An area designated as an enterprise zone under Government Code, §2303.003.

(6) Qualified business--A person certified as a qualified business under Government Code, §2303.402.

(7) Qualified capital investment--Tangible personal property that is first placed in service in an enterprise zone by a qualified business that has been designated as an enterprise project and that is defined in IRS Reg. §1.48-1(c) and described in Internal Revenue Code, §1245(a), subject to depreciation or amortization including engines, machinery, tools, and implements that are used in a trade or business, or are held for investment. The term includes transportation costs and direct labor costs necessary to fabricate, install or place the tangible personal property in service. The term does not include real property or buildings and their structural components. Property that is leased under a capitalized lease is considered a "qualified capital investment," but property that is leased under an operating lease is not considered a "qualified capital investment." Property that is expensed under Internal Revenue Code, §179, is not considered a "qualified capital investment." The term also does not include all costs included in the depreciable basis such as indirect labor costs, interest, intangibles and overhead.

(8) Tangible personal property first placed in service in an enterprise zone includes tangible personal property that is:

(A) purchased by an enterprise project for placement in an incomplete improvement that is under active construction or other physical preparation;

(B) identified by a purchase order, invoice, billing, sales slip, or contract; and

(C) physically present at the enterprise project's qualified business site, as defined by Government Code, §2303.003, and in use by the enterprise project on the original due date of the report on which the credit is taken.

(9) Clean energy project--A project as defined by Natural Resources Code, §120.001(2).

(c) Information required. A taxable entity that claims a credit under this section must submit a credit schedule with each report that a credit is claimed.

(d) Limitations.

(1) The total research and development credit, jobs creation and investment credits that a taxable entity claims may not exceed the amount of franchise tax due for the report after any other applicable credits.

(2) A taxable entity may not convey, assign, or transfer to another entity the credits that this section provides, unless all of the assets of the taxable entity are conveyed, assigned, or transferred to the entity in the same transaction.

(e) Research and development credit.

(1) Carryforward. If a taxable entity established a research and development credit on a franchise tax report originally due prior to January 1, 2008, that exceeded the tax limitations, then the taxable entity may continue to carry the unused credit forward on each consecutive report until the earlier of the date the credit would have expired under Tax Code, Chapter 171, Subchapter O, or December 31, 2027.

(2) Report limitation. The total research and development credit carryforward that a taxable entity may claim for a report may not exceed 50% of the amount of franchise tax that is due for the report before any other tax credits are applied.

(3) Combined group. A taxable entity that is a combined group may claim the unused credit carried forward for each member entity. The limitation in subsection (d) of this section and report limitation in paragraph (2) of this subsection shall be applied to the amount of franchise tax due of the combined group before any other tax credits are applied.

(f) Jobs creation credit.

(1) Carryforward. If a taxable entity established a jobs creation credit on a franchise tax report originally due prior to January 1, 2008, that exceeded the tax limitations, then the taxable entity may continue to carry the unused credit forward on each consecutive report until the earlier of the date the credit would have expired under Tax Code, Chapter 171, Subchapter P, or December 31, 2012.

(2) Report limitation. The total jobs creation credit carryforward that a taxable entity may claim for a report may not exceed 50% of the amount of franchise tax that is due for the report before any other tax credits are applied.

(3) Combined group. A taxable entity that is a combined group may claim the unused credit carried forward for each member entity. The limitation in subsection (d) of this section and report limitation in paragraph (2) of this subsection shall be applied to the amount of franchise tax due of the combined group before any other tax credits are applied.

(g) Investment credit.

(1) Installment. A taxable entity that has any unused installments from an investment credit established on a franchise tax report originally due prior to January 1, 2008, may claim the remaining installments on consecutive reports beginning with reports originally due on or after January 1, 2008.

(2) Carryforward. A carryforward is the remaining portion of an installment that cannot be claimed in the current year because of the limitations that are stated in subsection (d)(1) of this section or this paragraph. A carryforward is added to the next year's installment of the credit in determination of the limitations for that year. A credit carryforward from a previous report must be used before the current year installment. The taxable entity may carry the unused credit forward on each consecutive report until the earlier of the date the credit would have expired under Tax Code, Chapter 171, Subchapter Q, or December 31, 2012.

(3) Report limitation. The total investment credit that a taxable entity may claim for a report including any credit under subsection (h) of this section, may not exceed 50% of the amount of franchise tax that is due for the report before any other tax credits are applied.

(4) Ineligibility.

(A) A taxable entity may not take any remaining installment of the credit, (except the taxable entity is permitted to take the portion of an installment that accrued in a previous year and was carried forward pursuant to paragraph (2) of this subsection), if, during one of the periods used to determine margin for a report on which an installment could be claimed, the taxable entity:

(i) disposes of the qualified capital investment;

(ii) takes the qualified capital investment out of service;

(iii) moves the qualified capital investment out of the strategic investment area; or

(iv) fails to pay an average weekly wage, at the location for which the credit is claimed, that amounts to at least 110% of the county average weekly wage.

(B) For purposes of subparagraph (A)(i) - (iii) of this paragraph, an installment may still be taken if the qualified capital investment is replaced at the same location within 90 days with a new qualified capital investment of equal or greater value.

(5) Combined group. A taxable entity that is a combined group may claim any remaining installments and unused credit carried forward for each member entity. The limitation in subsection (d) of this section and report limitation in paragraph (3) of this subsection shall be applied to the amount of franchise tax due of the combined group before any other tax credits are applied.

(h) Enterprise projects. A taxable entity that has been designated an enterprise project on or after September 1, 2001, but before January 1, 2005, may establish a credit that equals 7.5% of the qualified capital investment made on or after January 1, 2005, and before January 1, 2007. Subject to paragraph (4) of this subsection, an enterprise project may claim the entire credit established on a report originally due on or after January 1, 2008, and before January 1, 2009.

(1) Carryforward. If an enterprise project is eligible for a credit that exceeds the limitation under paragraph (4) of this subsection, the enterprise project may carry the unused credit forward for not more than five consecutive reports.

(2) Ineligibility.

(A) An enterprise project is not eligible for a credit under this subsection if the enterprise project claimed a credit under Tax Code, Chapter 171, Subchapter Q, before the repeal of that subchapter on January 1, 2008.

(B) A taxable entity, other than a combined group, may not claim the credit under this subsection unless the taxable entity was, on May 1, 2006, subject to the tax imposed by this chapter as it existed on that date.

(C) A taxable entity that establishes its eligibility for an investment credit is not eligible to claim a franchise tax reduction that is authorized under Tax Code, §171.1015.

(3) Combined group. A taxable entity that is a combined group may claim the credit for each member entity that was, on May 1, 2006, subject to the tax imposed by this chapter as it existed on that date and shall compute the amount of the credit for that member as provided by this subsection.

(4) Report limitation. The total investment credit that a taxable entity claims for a report, including the amount of any installment or carryforward under subsection (g)(1) and (2) of this section may not exceed 50% of the amount of franchise tax that is due for the report before any other tax credits are applied.

(5) Expiration. This subsection expires on December 31, 2009. This expiration does not affect the carryforward of a credit that was established on a report that was originally due before this expiration date.

(i) Clean energy project credit. A clean energy project credit established under Government Code, Chapter 490, Subchapter H, as follows:

(1) Eligibility. A franchise tax credit shall be issued to a taxable entity implementing a clean energy project in this state in connection with the construction of a new facility after:

(A) the Railroad Commission of Texas (the commission) has issued a certificate of compliance for the project to the entity as provided by Natural Resources Code, §120.004. The commission may not issue a certificate of compliance for more than three clean energy projects;

(B) the construction of the project has been completed;

(C) the electric generating facility associated with the project is fully operational;

(D) the Bureau of Economic Geology of the University of Texas at Austin verifies to the comptroller that the electric generating facility associated with the project is sequestering at least 70% of the carbon dioxide resulting from or associated with the generation of electricity by the facility; and

(E) the owner or operator of the project has entered into an interconnection agreement relating to the project with the Electric Reliability Council of Texas.

(2) Credit calculation. The total amount of the franchise tax credit that may be issued to the entity designated in the certificate of compliance for a clean energy project is equal to the lesser of:

(A) 10% of the total capital cost of the project, including the cost of designing, engineering, permitting, constructing, and commissioning the project, the cost of procuring land, water, and equipment for the project, and all fees, taxes, and commissions paid and other payments made in connection with the project but excluding the cost of financing the capital cost of the project; or

(B) $100 million.

(3) Report limitation. The amount of the franchise tax credit for each report year is calculated by determining the amount of franchise tax that is due based on the taxable margin generated by a clean energy project from the generation and sale of power and the sale of any products that are produced by the electric generation facility. The amount of the franchise tax credit claimed under this section for a report year may not exceed the amount of franchise tax attributable to the clean energy project for that report year.

(4) Issuance Restriction. A franchise tax credit for a clean energy project may not be issued before September 1, 2013.

Source Note: The provisions of this §3.593 adopted to be effective January 1, 2008, 32 TexReg 10049; amended to be effective December 31, 2009, 34 TexReg 9472