Franchise Tax Frequently Asked Questions

Yes. For detailed information, see Subchapter T Franchise Tax Credit for Research and Development Activities.

Research and development activities are activities that qualify for the federal research and development credit. The Subchapter T research and development franchise tax credit is based on qualified research expenses reported on IRS Form 6765 and incurred in Texas.

Although the two credits are based on similar expenses and activities, there are some differences. Many of these differences are technical. One overarching difference is that the new Subchapter T franchise tax credit requires a taxpayer to have submitted an IRS Form 6765 to the IRS for each year that the taxpayer claims the Texas franchise tax credit, whereas the repealed Subchapter M franchise tax credit allowed a taxpayer to independently demonstrate qualified research expenses without claiming the federal research and development credit.

Another major difference is that the new Subchapter T franchise tax credit is refundable for those taxpayers that do not owe franchise tax due to one of the following reasons: The entity is a qualified new veteran-owned business; the tax computed for the entity is less than $1,000; or the entity's annualized total revenue is less than or equal to the No Tax Due Threshold.

After claiming any R&D carryforwards from credits created under Subchapter O, Subchapter M, or Subchapter T, and the BLC credit allowed under Tax Code, Section 171.111 (Temporary Credit on Taxable Margin), if the tax due is reduced below $1,000 you may take a Subchapter T R&D credit as a refundable credit. Any other credits the taxpayer is entitled to can still be created, but will result in carryforward to future years. A taxpayer cannot use QREs to create a regular Subchapter T credit and a refundable Subchapter T credit in the same year.

Yes, if you meet the qualifications. See Tax Credit for Certified Rehabilitation of Certified Historic Structures for details on qualifying for the credit.

Yes, if you meet the qualifications. See Franchise Tax Credit for Clean Energy Projects for details on qualifying for the credit.

No. For any report year in which the E-Z Computation is used, the business loss carryforward credit for that year is lost and may not be carried over to subsequent years. Texas Tax Code 171.1016(c).

A taxable entity that is a combined group may claim the temporary credit for each eligible member of the combined group. An eligible member is one subject to the franchise tax on May 1, 2006, and that preserved the right to take the credit on or before the due date of its 2008 report.

If a combined group member leaves the combined group during a tax period, the combined group may claim the departing member's entire amount of credit and the member's entire available credit carryover for the report year. For subsequent reports, the departed member's credit will no longer be available to the combined group, and the combined group's credit carryover must be adjusted to remove the portion of carryover related to the departed member.

Example: Entities A, B and C each have business loss carryforwards and are members of combined group ABC, a calendar year tax filer. If Group ABC sells member C during the 2015 accounting period, Group ABC may claim C's credit and share of the carryover on the combined group's 2016 franchise tax report. For subsequent reports, C's credit and share of the carryover are no longer available to the combined group. A and B's credits remain with the combined group.

If one member of a combined group merges into another member of the same combined group, that nonsurviving member's business loss carryforward will remain with the group.

If a combined group expands from within, there is no effect on the temporary credit of the combined group. If a combined group adds an existing entity to the group, that new member's temporary credit is lost.

Example: If Group ABC acquires D after June 30, 2007, then A, B and C's credits remain. D's credit, if any, is lost.

A taxable entity must apply to reserve a credit allocation through the Comptroller’s Webfile system. The entity must have a Webfile profile established to access the credit reservation system. To set up a Webfile profile, go to the Webfile/eSystems webpage. We recommend that an entity set up its profile prior to the reservation system opening if it does not already have one.

The taxable entity must have an active franchise tax account status to reserve a credit allocation. An entity can verify its account status on the Franchise Tax Account Status webpage. An entity is not eligible to receive a credit allocation or be awarded a credit if its right to transact business or its charter/registration is forfeited.

Once signed into Webfile, navigate to the eSystems Services list. The Strong Families credit will be towards the bottom of the list.

The entity will be asked for the following information:

• 11-digit Texas Taxpayer Number
• Mailing address
• Contact person
• Amount of Contribution (enter the total contribution(s) you intend to make, even if the contributions will go to multiple entities)
• Is this entity a member of a combined group? If “yes,” provide the name and Texas Taxpayer Number for the reporting entity.
• If the contribution has already been made, the entity is asked to provide the Eligible Organization Name, Eligible Organization certification number issued by Onestar, and the date of contribution.

Yes. A taxable entity may contribute to more than one eligible organization. However, the taxable entity, including a combined group, is limited to a total credit of $1,000,000. The taxable entity should enter the total amount of proposed contribution(s) when reserving a credit allocation.

Enter the total amount of proposed contribution(s) when reserving the credit allocation.

Yes. A combined group may claim a Strong Families credit based on the contributions of its members. The combined group, however, is limited to a total credit of $1,000,000 for each report year.