• $1 million exemption made permanent,
  • Alternative tax rates reduced 2.5% for 2014 and 2015,
  • New exemptions for R&D activities,
  • New credits coming for qualified clean energy projects

Recently, Gov. Rick Perry signed legislation bringing almost $1 billion in tax relief for Texas businesses.  The new law allows businesses to exclude the first $1 million in revenue from margin tax liability and establishes tax credits and exemptions for clean energy development and companies with research and development activities.
Texas businesses with revenues of $1 million or less have enjoyed a temporary exemption that was to expire next year. Now the exemption has been made permanent..

Businesses may use temporary alternative rates to calculate their tax in 2014 and 2015, resulting in a 2.5 percent tax reduction each year.  In 2014, those alternative rates are 0.975 percent of taxable margin for entities not primarily engaged in retail or wholesale trade and 0.4875 percent of taxable margin for entities primarily engaged in retail or wholesale trade. The rates drop to 0.95 percent and 0.475 percent in 2015.

The State now provides sales tax exemptions and franchise tax credit alternatives to companies performing qualified research and development activities in Texas.  The newly signed legislation exempts certain depreciable tangible personal property used in qualified research from state sales taxes.

The Texas Tax Code was also been amended to provide for an alternative franchise tax credit in lieu of the sales tax exemption of 5% of the difference between a company’s research expenses during a tax period and half of the average amount of its research expenses over the three previous tax reporting periods.  A separate franchise tax credit is available to entities that contract with higher education institutions to perform qualified research.

Starting in 2018, a franchise tax credit will be available for companies implementing clean energy projects that are certified by the Texas Railroad Commission.  These credits may applied immediately against margin tax liability or carried forward for up to 20 consecutive tax periods.  The credits may also be assigned to another entity to claim as a credit against its franchise tax.