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State program

Texas Research and Development Credit

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  • Partly refundable

Last reviewed November 2026

Important change: Senate Bill 2206 (89th Legislature, 2025) repealed the former franchise tax research credit (Tax Code Chapter 171, Subchapter M) and the sales and use tax exemption for qualified research (Tax Code §151.3182), both effective January 1, 2026. It replaced them with a new, permanent franchise tax credit in Tax Code Chapter 171, Subchapter T. There is no longer a sales tax exemption for research property for report periods after December 31, 2025.

At a glance

  • Jurisdiction: Texas (TX)
  • Credit name: Tax Credit for Certain Research and Development Activities (Texas Tax Code Chapter 171, Subchapter T, §§171.9201 et seq.)
  • Administering agency: Texas Comptroller of Public Accounts
  • Rate(s) and base: 8.722% of Texas qualified research expenses (QREs) above 50% of the average Texas QREs for the three preceding periods. The rate is 10.903% if the entity contracts with one or more public or private institutions of higher education for the research. If the entity had no Texas QREs in one or more of the three preceding periods: 4.361% of current-period Texas QREs (5.451% with a higher-education contract).
  • Refundable? Partly. An entity that owes no franchise tax can get the credit as a refund: a qualified new veteran-owned business, an entity whose tax due is less than $1,000, or an entity whose annualized total revenue is at or below the no-tax-due threshold. E-Z computation filers cannot get the refund. Everyone else can use the credit only to offset franchise tax.
  • Transferable? No. Under Tax Code §171.9209, a credit can move to another entity only if substantially all of the entity's assets are transferred to that entity in the same transaction.
  • Carryforward: Up to 20 consecutive reports. Unused Subchapter M credits from before January 1, 2026 can still be used until they would have expired.
  • Annual cap / proration: No statewide cap. For each report, the credit plus any carryforward cannot exceed 50% of franchise tax due before other credits. The 50% limit does not apply to the refundable credit.
  • Pre-approval / application and deadline: No pre-approval or registration. You claim the credit on the franchise tax report. The entity must have reported QREs on federal Form 6765 for the year. A refund claim requires Form 05-183, which must be filed by the report's due date (the Comptroller says no later than November 15 of the report year for long-form filers). Late applications are not accepted.
  • Forms: Long Form Franchise Tax Report (05-158-A/05-158-B); Form 05-181 (Credits Summary Schedule); Form 05-182 (Subchapter T R&D Credits Schedule); Form 05-183 (refundable credit application) and Form 05-184 (affiliate list for combined groups); Form 05-166 (combined group entity QREs). Attach-ready support: federal Form 6765.
  • Sunset / recent changes: No sunset. SB 2206 applies to reports originally due on or after January 1, 2026.

What it is

Texas gives a franchise tax credit for qualified research done in Texas. Since January 1, 2026 the credit is under Subchapter T. It is based on the QREs a business reports on federal Form 6765, limited to the part attributable to research done in Texas. Subchapter T replaced the old 5% Subchapter M credit and the option to take a sales and use tax exemption on research equipment instead. Businesses that owe no franchise tax can get the credit as a refund.

Who can claim it

  • Taxable entities subject to the Texas franchise tax that do qualified research in Texas, as defined for the federal credit under IRC §41.
  • The entity must have filed federal Form 6765 with the IRS reporting QREs for each year it claims the Texas credit.
  • An entity cannot claim the credit for a report period in which it, or any member of its combined group, received the former sales tax exemption under §151.3182. This matters mainly for the 2026 report.
  • Refundable credit: available to qualified new veteran-owned businesses, entities whose tax due is under $1,000, and entities whose annualized total revenue is at or below the no-tax-due threshold ($2.65 million for 2026–2027 reports). It is not available to E-Z computation filers.

How it is calculated

  1. Start with total QREs reported on federal Form 6765 (line 48 under the Comptroller's current guidance) and keep only the part attributable to research done in Texas.
  2. Subtract 50% of the average Texas QREs for the three preceding periods.
  3. Multiply the excess by 8.722%, or by 10.903% if the entity contracts with a public or private institution of higher education.
  4. If the entity had no Texas QREs in any one of the three preceding periods, the credit is instead 4.361% of all current-period Texas QREs (5.451% with a higher-education contract).
  5. For a credit used against tax: total credits claimed in the report, including carryforwards, cannot exceed 50% of franchise tax due before other credits. Any excess carries forward for up to 20 consecutive reports.
  6. Combined groups report each member's Texas QREs on Form 05-166. The total must match line 1A of Form 05-182.
  7. You cannot use the same QREs to create both a regular credit and a refundable credit in the same year. Subchapter O, M and T credits and the §171.111 credit are applied before any refundable credit is figured.

How to claim it

  • Entities that owe tax: File the Long Form report (05-158-A/B) with Form 05-181 and Form 05-182, either on Webfile or with approved software. Claim legacy Subchapter M carryforwards on Form 05-181.
  • Entities that owe no tax and want a refund: Submit a copy of the federal Form 6765 to the Comptroller and file Form 05-183, plus Form 05-184 for combined groups, on or before the report's due date (no later than November 15 of the report year for long-form filers). No Form 05-183 is accepted after the due date. You can amend Forms 05-183 and 05-184 only before the due date, or when Tax Code §171.212(a) requires an amended report because federal QREs changed.
  • Keep the federal Form 6765 and workpapers that tie federal QREs to Texas-sourced activity.

Recent changes

  • SB 2206 (2025), effective January 1, 2026: Repealed Subchapter M and the §151.3182 sales tax exemption, and created Subchapter T, which has new rates (8.722%, 10.903%, 4.361%, 5.451%), a base tied to Form 6765, a 20-report carryforward, a refundable credit for no-tax-due entities, and no expiration date. The old law had been set to expire December 31, 2026.
  • Comptroller implementation (2026): Issued new Forms 05-181, 05-182, 05-183 and 05-184 and published guidance on the Subchapter T credit. Annual Information Reports for the old sales tax exemption are still due March 31 for years the exemption was used.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Texas and other locations, how Texas amounts reconcile to federal Form 6765, the Texas credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Texas tax.

  • How do the Texas QREs tie to the QREs on the federal Form 6765 you filed for the same year?
  • How did you decide which wages, supplies and contract research are attributable to research done in Texas?
  • What were your Texas QREs in each of the three preceding periods, and how did you document them?
  • Do you have a contract with a public or private institution of higher education that supports the 10.903% rate?
  • Did the entity or any combined-group member use the §151.3182 sales tax exemption during the report period?
  • For refund claims: was Form 05-183 filed on time, and does the entity meet a no-tax-due test?
  • Do the carryforward schedules show where each Subchapter M and Subchapter T credit came from and when it was used?

Common weak spots

  • Applying the higher-education rate without a contract that clearly covers the qualified research.
  • Texas QREs that do not reconcile to Form 6765, or no Form 6765 filed for the year.
  • Prior-period Texas QREs reconstructed from incomplete records, which can overstate or understate the base.
  • Missing the Form 05-183 refund deadline, which cannot be cured.
  • Using the sales tax exemption and the credit for the same period.
  • Combined-group QREs on Form 05-166 that do not match Form 05-182.

Next steps

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.

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