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SB2206

Regular Session

Relating to a franchise tax credit for, and the application of sales and use taxes to, certain research and development expenses.

Critical
High Cost
Effective:2026-01-01
SB2206
Critical
Relating to a franchise tax credit for, and the application of sales and use taxes to, certain research and development expenses.
Critical Compliance Urgency
Requires immediate attention
Cost Impact
High
Effective
2026-01-01
Enforcing Agencies
Texas Comptroller of Public Acco...
Primary Author: Sen. Paul Bettencourt
89th Texas Legislature
jdkey.com
01

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

  • Effective Date: January 1, 2026
  • Compliance Deadline: January 1, 2026 (Procurement must cease issuing exemption certificates on this date). First tax filing utilizing the new credit will be due May 15, 2027.
  • Agency Rulemaking: The Comptroller must adopt rules regarding the new "Refundable Credit" application form and allocation methodologies. Expect draft rules in late 2025 to define how federal Qualified Research Expenses (QREs) are specifically attributed to Texas.

Immediate Action Plan

  • Accelerate CAPEX: Purchase and take delivery of major R&D equipment before December 31, 2025, to utilize the expiring sales tax exemption.
  • Update ERP Systems: Configure purchasing software to automatically apply sales tax to R&D vendors starting Jan 1, 2026.
  • Model the Impact: Have finance teams calculate the net variance between losing the 6.25-8.25% sales tax savings vs. gaining the 8.722% (or 10.903%) franchise tax credit.
  • Draft Pro Forma 6765: If you do not currently file IRS Form 6765, engage outside tax counsel to prepare a pro forma version, as it is now the mandatory basis for the Texas claim.

Operational Changes Required

Contracts

  • University Agreements: Review all Master Research Agreements. To claim the enhanced 10.903% credit rate, you must have a valid contract with a Texas institution of higher education. Legal must ensure these agreements explicitly state the R&D is performed "under contract" to satisfy statutory definitions.
  • Vendor Agreements: Amend terms with equipment suppliers effective Jan 1, 2026. Remove clauses requiring vendors to accept Texas Sales and Use Tax Exemption Certificates for R&D goods to prevent billing disputes and audit exposure.

Hiring/Training

  • Procurement Teams: Staff must be retrained to stop flagging R&D assets as tax-exempt in purchasing systems effective Jan 1, 2026.
  • Tax Teams: In-house tax professionals must align state reporting with federal standards. Staff must be competent in IRS Form 6765 logic, as the Texas credit is now strictly derivative of this federal form.

Reporting & Record-Keeping

  • Federal Alignment: You must retain the specific IRS Form 6765 used to calculate the credit. If the IRS audits and adjusts this form, you are legally required to file an amended Texas Franchise Tax report.
  • Asset Tagging: Continue to tag R&D assets. While no longer needed for sales tax exemptions, these records are now required to substantiate "Qualified Research Expenses" for the franchise tax credit calculation.
  • Refund Applications: Entities with "No Tax Due" (startups/veteran-owned) must prepare to file a separate, new application with the Comptroller to receive the refundable cash payment.

Fees & Costs

  • Immediate Cash Flow Hit: Budgets for 2026 capital expenditures on R&D equipment must increase by the local sales tax rate (up to 8.25%). You will pay this tax upfront and will not recover funds until the May 2027 franchise tax filing.
  • Credit Cap: The credit is capped at 50% of your total franchise tax liability (unless you qualify for the refundable provision).

Strategic Ambiguities & Considerations

  • "Attributable to Texas": The law relies on IRS Form 6765 but requires expenses be "attributable to research conducted in this state." For software companies with distributed engineering teams, the methodology for allocating wages to Texas is currently undefined. We anticipate strict Comptroller scrutiny here; aggressive allocation without documentation will invite audits.
  • Refundable Credit Mechanism: The specific form and processing time for the "No Tax Due" refundable credit are not yet established. Startups should not bank on receiving these funds immediately upon filing in May 2027 until the Comptroller clarifies processing windows.

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Information presented is for general knowledge only and is provided without warranty, express or implied. Consult qualified government affairs professionals and legal counsel before making compliance decisions.

02

Legislative Timeline

This bill's path through the Texas Legislature

Filed
Mar 11, 2025
Passed Senate
Apr 28, 2025
Passed House
May 28, 2025
Signed
Jun 22, 2025
TopicsEducationEducation--higherEducation--higher--institutions & ProgramsTaxationTaxation--franchiseTaxation--salesResearch & DevelopmentComptroller of Public AccountsEducation--higher--private Schools
03

Senate Authors

Sen. Paul BettencourtRepublican · Primary Author
Joint Authors

House Sponsor

Rep. Charlie GerenRepublican · Primary Sponsor

Bill Text(with markup)

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

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Quick Reference

Frequently Asked Questions

Common questions about SB2206

Q

What does Texas SB2206 do?

Effective January 1, 2026, SB2206 fundamentally alters Texas R&D taxation by repealing the point-of-sale sales tax exemption on R&D equipment and replacing it with an enhanced, potentially refundable Franchise Tax Credit. This legislation converts an immediate operational savings into a retrospective tax filing recovery, creating a significant cash-flow gap that businesses must budget for immediately. Implementation Timeline Effective Date: January 1, 2026 Compliance Deadline: January 1, 2026 (Procurement must cease issuing exemption certificates on this date).

Q

Who authored SB2206?

SB2206 was authored by Texas Senator Paul Bettencourt during the Regular Session.

Q

When was SB2206 signed into law?

SB2206 was signed into law by Governor Greg Abbott on June 22, 2025.

Q

Which agencies enforce SB2206?

SB2206 is enforced by Texas Comptroller of Public Accounts.

Q

How urgent is compliance with SB2206?

The compliance urgency for SB2206 is rated as "critical". Businesses and organizations should review the requirements and timeline to ensure timely compliance.

Q

What is the cost impact of SB2206?

The cost impact of SB2206 is estimated as "high". This may vary based on industry and implementation requirements.

Q

What topics does SB2206 address?

SB2206 addresses topics including education, education--higher, education--higher--institutions & programs, taxation and taxation--franchise.

Legislative data provided by LegiScanLast updated: November 25, 2025

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