AEM-supported Senate Bill 2206 (SB 2206) passed the Texas legislature and was sent to Governor Abbott on June 1 for his approval. The bill will provide an updated tax structure to support R&D, making it easier for manufacturers to innovate and remain competitive on the global stage.
SB 2206 replaces Texas’ R&D franchise tax credit, which is set to expire Dec. 31, 2026. Once signed into law, SB 2206 will make Texas’ R&D franchise tax credit permanent and more efficient for both taxpayers and the state.
Highlights of the bill include:
- Strengthening Partnerships With Institutions of Higher Education: The credit tiers include 8.722% for eligible expenses above a base threshold and 10.903% for eligible expenses associated with Texas higher education institutions. Credits are capped at 50% of a business’s tax liability.
- Incentivizing R&D in Texas: The credit only applies to in-state research efforts, ensuring that Texans benefit from the job creation and innovation spurred by these tax incentives.
- Simplifying Eligibility: To claim the tax credit, Texas companies must file IRS Form 6765, which is used to claim the federal R&D tax credit.
According to Texans for Innovation, expanding and making permanent R&D tax credits could create more than 113,000 jobs and $8.5 billion in wages by 2035. Further, the economic benefits will offset the cost of expanding R&D tax credits. Over 20 years, Texas could see a net economic gain of $58.8 billion.
The equipment manufacturing industry is capital intensive, has a high R&D to output ratio, a high R&D to employment ratio, and offers high wages on average to employees compared to other sectors. Because of this, it is critical that states continue to offer competitive R&D tax incentives to attract and retain manufacturers.
To learn more about tax issues in other states or to get involved in AEM’s advocacy efforts, please reach out to the AEM Advocacy Team at advocacy@aem.org.
