taxes

SUBCHAPTER T FRANCHISE TAX CREDIT FOR RESEARCH AND DEVELOPMENT ACTIVITIES

Overview

In 2025, the Texas Legislature passed a new Subchapter T research and development franchise tax credit, effective Jan. 1, 2026, which repealed an existing sales tax exemption and Subchapter M franchise tax credit for qualified research. The new law omitted the sales tax exemption and changed the franchise tax credit.

A taxable entity is eligible for a franchise tax credit for qualified research expenses. “Qualified research expense” is the portion of the amount reported by the taxable entity as the entity’s total qualified research expenses on line 48 of Internal Revenue Service (IRS) Form 6765 that is attributable to research conducted in Texas.

Certain taxable entities that do not owe any franchise tax may still be eligible for a refundable credit based on their qualified research expenses. More information is available in Tax Code Section 171.9205.

A taxable entity is not eligible to create a franchise tax credit or claim a refundable credit if the taxable entity – or any member of its combined group – received a sales tax exemption under Tax Code Section 151.3182 during the period on which a report is based.

How do I claim the franchise tax credit?

A taxable entity applying for the Subchapter T research and development franchise tax credit must follow different procedures and meet different requirements based on whether the entity owes franchise tax.

Taxable entity that owes franchise tax

A taxable entity applying for the Subchapter T research and development franchise tax credit must have filed an IRS Form 6765 with the IRS for any year that the entity seeks to claim the franchise tax credit. The taxable entity must then file Form 05-158-A and 05-158-B, Long Form Franchise Tax Report; with Form 05-181, Credits Summary Schedule; and Form 05-182, Subchapter T Research and Development Activities Credits Schedule. A franchise tax report may be submitted via Webfile or an approved tax software provider. See additional information on our Texas Franchise Tax Forms webpage.

Taxable entity that does not owe franchise tax

A taxable entity that does not owe franchise tax may be eligible for a refundable credit. To be eligible, the taxable entity must not owe franchise tax because: the taxable entity is a qualified new veteran-owned business; the taxable entity owes zero franchise tax because the tax computed for the entity is less than $1,000; or the taxable entity owes zero franchise tax because the taxable entity’s annualized total revenue is less than or equal to the No Tax Due Threshold.

A taxable entity calculating its franchise tax using the E-Z computation is not eligible to receive the refundable credit, even if its total tax computed is less than $1,000.

For the 2026 report, a taxable entity is not eligible for a refundable credit if the taxable entity, or any member of its combined group, received a sales tax exemption under Texas Tax Code Section 151.3182 (Certain Property Used in Research and Development Activities; Reporting of Estimates and Evaluation) during the period on which the report is based.

A taxable entity claiming a refundable credit must have filed an IRS Form 6765 with the IRS for any year that the entity seeks to claim the refundable credit and submit that IRS Form 6765 to the Comptroller. The taxable entity must additionally file Form 05-183, Texas Application for Franchise Tax Subchapter T Research and Development Activities Refundable Credit. A combined group claiming the refundable credit must also file Form, 05-184, Texas Franchise Tax Subchapter T Research and Development Activities Refundable Credit Affiliate List.

Due Date

Forms 05-183, Texas Application for Franchise Tax Subchapter T Research and Development Activities Refundable Credit, and 05-184, Texas Franchise Tax Subchapter T Research and Development Activities Refundable Credit Affiliate List, are due on or before November 15 of the report year if the taxable entity files the long form report or the year following the accounting period on which the taxable entity’s franchise tax report would be based if the taxable entity was required to file a report. No Form 05-183 will be accepted if filed after the due date. Forms 05-183 and 05-184 may only be amended if the amendment is made prior to the due date or if Tax Code, Section 171.212(a) requires the taxable entity to file an amended form due to changes in the taxable entity’s federal qualified research expenses.

Frequently Asked Questions

What are qualified 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.

What are the differences between the repealed Subchapter M franchise tax credit and the new Subchapter T franchise tax credit?

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 because: the entity is a qualified new veteran-owned business; the entity owes zero franchise tax because the tax computed for the entity is less than $1,000; or the entity owes zero franchise tax because the entity’s annualized total revenue is less than or equal to the No Tax Due Threshold.