Texas' Enhanced R&D Tax Credit Demonstrates Its Continued Pursuit of Innovation, Rather Than Relying Exclusively on Its Low Tax Structure
A Blast from Tax Town: Recent Income Tax Cuts and the R&D Tax Credit Extensions
It's been a jolly good time for taxpayers in several states recently. Let's dive into the details of the latest income tax cuts and R&D tax credit extensions that could make your upcoming Tax Day a breeze!
Income Tax Cuts Across the Country
Here's a quick rundown of what's been happening in different states:
- Montana took a massive step on April 28, when Greg Gianforte, the state's governor, signed into law the biggest income tax cut in its history.
- Not to be outdone, just over a week later on May 6, the South Carolina House passed a bill that sets the state on track for a flat 1.99% income tax rate, a significant drop from the current 6.2% top rate.
- Three weeks before the South Carolina House's action, the North Carolina Senate approved a budget that would lower the state's current 4.25% flat tax to 1.99% if certain revenue triggers are met.
- Meanwhile, the Oklahoma Senate gave final approval to legislation that will gradually phase out the state income tax.
R&D Tax Credit Extensions in Texas
Texas took a different approach by focusing on supporting innovation through the extension and strengthening of the state's Research & Development (R&D) tax credit.
On May 6, the Texas Senate unanimously passed Senate Bill 2206, which aims to boost the R&D franchise tax credit from 5% up to 8.722% and even higher to 10.903% for R&D with Texas universities and colleges. The bill now awaits consideration in the Texas House.
"For every $1 in R&D incentive, Texas gains $12.47 in Gross State Product over 20 years," Senator Paul Bettencourt, sponsor of SB 2206, pointed out. The bill is expected to create 6,662 new jobs annually, generate $445M in labor income, and add $748M to the state's Gross State Product every year.
The Austin American-Statesman reported that Texas' current R&D tax credit is on the lower end of the spectrum compared to other states, with China offering a 'super deduction' of 200% and states like California offering a 15% tax credit on qualified research expenditures, along with additional incentives for research at public universities.
"For those businesses, small entrepreneurial businesses that are startups that don't have income coming in, they would be able to take a credit off of their sales tax expenditures to use it or carry forward the credit to a time when they have profits coming in," Glen Hammer, CEO of Texas Association of Business, explained.
Texas isn't the only one pushing for R&D tax credit extensions, as congressional leaders are working to reinstate full-year one business expensing for R&D costs. Improving the tax treatment of R&D, particularly by restoring full expensing of R&D costs, is considered one of the most effective ways to promote economic growth, according to researchers at the Tax Foundation.
So there you have it, folks – income tax cuts and R&D tax credit extensions that might just have a positive impact on your wallet and make your favorite entrepreneurs and innovators jump for joy! Keep an eye on these developments, and we'll see how everything unfolds in the coming months.
- The Texas Senate has proposed to boost the state's Research and Development (R&D) franchise tax credit from 5% up to 10.903%, with higher incentives for R&D conducted in collaboration with Texas universities and colleges.
- In contrast to other states like California, offering a 15% tax credit on qualified research expenditures, and China with a 'super deduction' of 200% on R&D expenses, Texas' current R&D tax credit is towards the lower end of the spectrum.
- To support innovation, Texas is focusing on extending and strengthening its R&D tax credit, and congressional leaders are working to reinstate full-year one business expensing for R&D costs.
- For businesses, particularly small entrepreneurial ventures, the proposed R&D tax credit extension in Texas would allow them to claim a credit off of their sales tax expenditures, applicable even during periods of no profit.
- According to researchers at the Tax Foundation, improving the tax treatment of R&D, especially by restoring full expensing of R&D costs, is considered one of the most effective ways to promote economic growth.
