“Business-friendly” Texas has been the leading poacher of California-based companies for over a decade, with relocations from tech-dominated California only accelerating during the pandemic. Oddly enough, at a time when Texas’s highest-profile new neighbors are known for cutting-edge research, the state seeks to narrow the scope of its research and development credit applicable to some internal-use software.
Last fall the Texas Comptroller of Public Accounts adopted amended rules concerning the state’s R&D credit applicable to franchise and sales taxes. These amendments provide detailed guidance regarding how the comptroller seeks to administer the credit in the future.
However, the way in which Texas conforms to the Internal Revenue Code has led the comptroller to misapply the federal regulations to Texas’s R&D credit. This misapplication may create unpleasant surprises for Texas taxpayers, particularly those relocating operations to the Lone Star State.
In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Mary Monahan, Dennis Jansen and Mary Kate Nicholson look at Texas’s recently amended rules and their impact.
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