INSIGHT

Texas Law Delivers Enhanced, Refundable R&D Tax Credits 

July 27, 2026

Services: R&D Tax Credit

---

For more than a decade, Texas gave companies doing research in the state a choice: take a sales tax exemption on R&D equipment or claim a credit against the franchise tax. That choice is gone. Senate Bill 2206, signed by Governor Greg Abbott in June 2025 and effective January 1, 2026, replaced both options with a single, permanent franchise tax credit that pays out more and reaches more businesses than the old rules ever did. 

A Larger Credit, Tied to What You Already Report Federally 

The standard credit rate jumps from 5% to 8.722% of qualified research expenses. Companies that conduct research with a Texas public or private college or university can claim an even higher rate of 10.903%. Businesses without three prior years of research spending to establish a baseline still get a credit, calculated at 4.361% (or 5.451% for university partnerships). 

The credit amount is based on current year qualified research expenses above 50% of the average from the preceding three tax periods, the same base period structure used at the federal level. 

Refundable for Businesses That Owe Little or No Franchise Tax 

This is the provision worth reading twice if your company has never bothered claiming the Texas credit before. 

Under the prior Texas R&D credit rules, pre-revenue startups and businesses with little or no franchise tax liability often received limited or no immediate benefit because the credit could only be used to offset franchise tax owed.  

Under the new law, certain eligible businesses may qualify for a refundable credit, allowing them to receive a cash refund from the Texas Comptroller even when they owe little or no franchise tax. This can be particularly beneficial for businesses that fall below the Texas “no tax due” revenue threshold, have minimal franchise tax liability, or qualify as a new veteran-owned business. 

Businesses that want to apply for the refundable credit need to file Texas Form 05-183 by the report due date, so this is not something to work out after the fact. One important guardrail: a business cannot claim the new credit for any period in which it used the repealed sales tax exemption, so companies need to pick a lane rather than try to layer both benefits in an overlapping period. 

The credit remains nontransferable, is generally capped at 50% of the franchise tax due for companies that do owe tax, and can be carried forward for up to 20 years. 

The Trade-Off: The Sales Tax Exemption Is Gone 

The repeal of the R&D equipment sales tax exemption took effect the same day the new credit did, so any equipment purchased on or after January 1, 2026 no longer qualifies for that exemption. Companies with capital-intensive research operations, think semiconductor fabrication, life sciences manufacturing, or other equipment-heavy work, should look closely at whether the enhanced credit still comes out ahead now that the exemption is off the table. The two benefits are calculated on different bases, so the comparison depends on your specific mix of equipment spend versus qualified research expenses. 

What Businesses Should Do Now 

“This is one of the more meaningful state R&D credit changes we’ve seen in years, and the refundability piece is the part many start-up companies will be prone to miss,” said Andre Shevchuck, Partner and leader of BPM’s R&D Tax Credit Consulting practice. 

Texas businesses conducting qualified research should: 

• Confirm whether the company qualifies for the refundable credit, and if so, calendar the Form 05-183 deadline 
• Review R&D equipment purchases made this year to confirm you’re accounting for the loss of the sales tax exemption in your planning 
• Revisit the decision to skip the Texas credit if the company previously found it not worth claiming 
• Make sure federal Form 6765 documentation is solid, since Texas now leans on it directly 

Talk to BPM Before Your Next Franchise Tax Report Is Due 

State R&D credit rules shift often, and the interaction with your federal credit calculation adds another layer to get right. Whether you have claimed the Texas credit for years or wrote it off long ago, this is worth a fresh look. 

BPM’s R&D Tax Credit team can help you determine whether your business qualifies for the refundable credit, quantify the impact of the higher credit rates, and time any equipment purchases around the sales tax exemption repeal. Contact us to talk about what Senate Bill 2206 means for your business.