S.B. No. 2206 proposes a new subchapter to the Texas Tax Code that establishes a franchise tax credit for certain research and development (R&D) expenses incurred by taxable entities. The bill defines "qualified research expense" and sets the tax credit at 8.722% of the difference between the qualified research expenses incurred during the reporting period and 50% of the average qualified research expenses from the previous three tax periods. If a taxable entity collaborates with public or private institutions of higher education, the credit increases to 10.903%. The bill also allows for a refundable credit for entities that do not owe tax during the reporting period, along with provisions for combined reporting of credits, limitations on total credits claimed, and the ability to carry forward unused credits for up to 20 consecutive reports.

Furthermore, the bill amends Section 171.212(a) of the Tax Code to clarify the definition of "qualified research expense" by referencing Section 171.9202 and requires taxable entities to file amended reports if there are changes to their taxable margin or qualified research expenses due to audits or adjustments. It repeals Section 151.3182 and Subchapter M of Chapter 171 while ensuring that tax liabilities and unused credits accrued under these provisions remain enforceable until their original expiration dates. The new Subchapter T will apply only to reports due on or after January 1, 2026, and specifies that entities that received exemptions under the repealed section during the relevant reporting period are ineligible for credits under the new subchapter. The effective date for this legislation is set for January 1, 2026.

Statutes affected:
Introduced: Tax Code 171.212 (Tax Code 171)
Senate Committee Report: Tax Code 171.212 (Tax Code 171)
Engrossed: Tax Code 171.212 (Tax Code 171)