Texas Overhauls R&D Franchise Tax Credit and Advances Small‑Business Reforms

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June 2025 brought major legislative changes for Texas businesses, with new laws that both supercharge research and development (R&D) incentives and ease burdens for small businesses. These reforms underscore Texas’s commitment to remaining a business-friendly state while fostering innovation and entrepreneurship.

Enhanced Franchise Tax Credit for R&D

Governor Greg Abbott signed Senate Bill 2206 into law on June 17, 2025. The bill significantly strengthens the R&D franchise tax credit, increasing the rate from 5% to 8.722% for qualifying research expenses. The changes will take effect for franchise tax reports due on or after January 1, 2026.

This legislation also aligns Texas’s credit with federal R&D definitions, allowing businesses to reference IRS Form 6765 and supporting methodologies. Importantly, the credit is now permanent, removing its previous expiration date in 2026.

While the credit becomes more generous, it comes with a trade-off. The bill repeals the sales and use tax exemption for certain R&D-related property, effective January 1, 2026. Businesses will need to evaluate which benefit provides greater value under their specific circumstances.

Streamlining for Small Businesses

Also on June 17, Governor Abbott signed several bills designed to reduce barriers for small business owners. These include House Bills 346, 2464, and 5195, which together modernize filing systems, remove unnecessary regulation, and improve state digital services.

  • HB 346 enables expedited business filings and makes permanent the exemption from franchise taxes and fees for veteran-owned businesses.
  • HB 2464 limits the ability of cities to impose new regulations on certain home-based businesses.
  • HB 5195 directs state agencies to modernize their online platforms for improved access to business services.

Governor Abbott emphasized that small businesses account for nearly half of the state’s workforce and play a critical role in Texas’s economic success. These changes aim to remove obstacles that prevent entrepreneurs from growing and thriving.

Fort Worth Named Aviation and Defense Capital

In a symbolic move reinforcing the state’s support for regional innovation, Senate Concurrent Resolution 142 officially designates Fort Worth as the “aviation and defense capital of Texas.” This strengthens the city’s position as a national center for advanced manufacturing and aerospace development.

Next Steps for Business Leaders

With these new laws taking effect in 2026, companies should begin preparing now:

  • Review your R&D expenditures and consider transitioning to the enhanced franchise tax credit.
  • Confirm that your R&D documentation aligns with federal standards to ensure eligibility and audit readiness.
  • Take advantage of new filing options and tax relief programs-especially for veteran-owned and home-based businesses.
  • Watch for updates from state agencies as they modernize their online services under HB 5195.

These legislative changes send a clear signal: Texas intends to remain a top destination for innovation and small business success.

How Does Your State Rank on the Innovation Scale?

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Innovation Is Key

Innovation is crucial to sustainable economic growth, but for innovation to occur businesses must have both the incentive and the capacity to invest.

As innovation is key to the United States’ economy as a whole, many U.S. states are showing off while others are falling short when it comes to patents, R&D, venture capital and academics.

So which states are excelling in innovation and which ones are lacking, you ask?

Patents

The top states in patents per population include:

  1. Wisconsin
  2. Washington
  3. Texas
  4. Utah
  5. California
  6. Massachusetts

The bottom five patented states include:

  1. Alaska
  2. Mississippi
  3. Tennessee
  4. West Virginia
  5. Wyoming

Venture Capital

The top states for venture capital are:

  1. Massachusetts
  2. California
  3. Utah
  4. Washington
  5. Colorado

The lowest are:

  1. Arkansas
  2. Alaska
  3. Hawaii
  4. Wyoming
  5. Iowa
  6. South Dakota

R&D Spending

The leaders in R&D spending are:

  1. Delaware
  2. Michigan
  3. California
  4. Connecticut
  5. Massachusetts

The states that spent the least on R&D include:

  1. Arkansas
  2. Wyoming
  3. Louisiana
  4. Alaska
  5. Mississippi

Academics

As for academics, the top states include:

  1. New Mexico
  2. Maryland
  3. Rhode Island
  4. Massachusetts
  5. Alabama

The lowest academic rankings were for:

  1. Louisiana
  2. Arkansas
  3. Delaware
  4. Wyoming
  5. Nevada

If you are a U.S. based company conducting R&D you may be eligible for the federal and/or state research tax credit. Please contact a Swanson Reed representative to find out further information.

Which Texan City is Exceeding Tech Job Growth?

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From 2015 to 2016, tech jobs in Texas increased by 1.9%, producing 11,000 new jobs. Yet the standout city was Dallas, creating 2,978 jobs last year, mainly due to strong growth in computer systems design, telecommunications services and IT services.

With the exception of California, Texas hires more tech workers than any other state. Last year, 2,196 tech jobs were generated in Houston, 974 in Austin and 843 in San Antonio, bringing the total number of tech employees in the state to 592,960. These cities are among the fastest-growing metro areas in the US. Popular tech jobs include computer user support specialist with almost 5,000 workers in San Antonio alone, followed by application software developer with 4,620 employed.

Interestingly, Austin ranked 1st for start-up hubs based inland and 6th in the US overall, demonstrating that entrepreneurial activity is now occurring away from the typical coastal regions and well-known technology hubs. In actual fact, start-ups are now being formed in every state, in what has been termed, “The Rise of the Rest.” This is significant as high-growth start-ups provide the most potential for employment growth; they tend to create jobs faster than more established organizations.

Nationally, the tech sector grew by almost 3% in 2016, with California, New York, Florida and Massachusetts also among the top states for tech jobs. Tech job gains were largest in California, New York, North Carolina, Texas and Michigan.

Today, there are more US workers in tech jobs than in finance, transportation or construction. Since 2010, there has been a 2.7% gain each year for the sector. Technology is transforming every industry, as businesses become more and more reliant on IT for growth. Tim Herber from CompTIA, declared that, “Organizations of all sizes are embracing cloud-based technology solutions, expanding their mobile presence, fortifying cyber defenses and driving decision-making through advanced data analysis.”

The federal and state R&D Tax Credit is available to technology companies who are developing new or improved software, products, formulas or processes, among other activities. To find out whether your company is eligible, contact Swanson Reed R&D Tax Specialists.

What You Need to Know About Claiming Your R&D Tax Credits in Texas

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If you are currently running your own company in Texas, you may be eligible for the Research and Development (R&D) tax credit. At Swanson Reed, we are here to help you with anything that you may need in relation to claiming this tax credit for your business. We can simplify the complex process involved in R&D tax relief by processing your claim and getting your business a rebate in less time than you would have thought possible.

R&D Tax Credits in Texas

In the state of Texas, the R&D tax credit is called the Texas Research and Development Tax Credit. Any corporations and flow-through entities can apply, and unused credit can be carried forward 20 years. Beginning with any tax returns filed after January 1, 2014, Texas taxpayers can claim the state-wide R&D tax credit to offset a portion of their franchise tax. Taxpayers may also choose to use it towards sales and use tax exemption on the purchase or lease of depreciable, tangible property, which is used in qualified research in Texas. The credit rates for the Franchise Tax Credit are 2.5% for companies who have less than 3 years of QREs and did not work through a university. The credit rate is 3.125% for those companies who have less than 3 years of QREs, but actually did work though a university. In contrast, this credit rate is 5% for companies who have 3 years of QREs, but didn’t work though a university. Finally, the rate is 6.125% for any company that has 3 years of QREs and also worked through a university. The Franchise Tax Credit for any one period, including any amounts that are carried forward, cannot surpass 50% of the franchise tax liability for that period.

Assessing Eligibility for the R&D Tax Credit

It is a common misconception that the R&D tax credit may be difficult to qualify for—but it is untrue. Our R&D Eligibility Tool is a good place to start if you think your company might be working on eligible R&D activities.. The R&D tax credit is specifically designed to reward those companies who have risked their investments by placing the importance on research and development. Such risks make this country more competitive and attractive to potential new investors. If you are not in the technological sector, there is no need to worry! Technology includes a wide range of processes, including: medicine, science, manufacturing, engineering, gaming, and architecture. If your company is working on improving a product or process, then you could be eligible for this credit.

How Swanson Reed Can Help

Our trained and friendly staff is here to help you with any potential dilemma that you run into while applying for the R&D tax credit. Once determining your eligibility, we can move onto the process of compiling your claim. Our tax advisors will help corporations, small startup companies, and any other business professionals in between. We can help make your business more profitable by reducing the tax bills that you need to pay. We will ensure that you receive your just rewards for your continued participation and dedication to innovation technologies. If you would like to learn more about claiming R&D tax credits for your business, contact us at 512-333-2076 or fill out our online form.

Trump’s Proposed Tax Reforms

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After a dramatic election season the proposed tax reforms of US President Elect, Donald Trump, are currently a topic of great interest for businesses. While pre-election reform plans may not necessarily become legislation, Trump will be supported by Republican chambers of commerce, making passing legislation more likely in absence of strong opposition.

How Might This Affect R&D?

In an attempt to decrease corruption due to the influence of special interests, Trump plans to eliminate special interest outlays and most business tax credits such as the domestic production activities deduction and the work opportunity credit which currently supports veterans among other groups. These points are controversial as many of the expenditures he proposes to eliminate relate more to public policy concerns than they do to special interests.

However, one positive position maintained through Trumps reforms is the continuation of the Research and Development (R&D) tax credit. This influences greater innovation and improvement of existing systems or processes within industry. As Trump promotes the repatriation of labor and production, an increase in R&D support could be a possibility. Some predict that Trump may use the incentive as a maner of influencing larger percentages of manufacturing, not just research, within the U.S.

If  you would like to discuss the R&D Tax Incentive further, please do not hesitate to contact one of Swanson Reed’s offices today.

Financial Benefits of IC-DISC and R&D Tax Credits for U.S. Manufacturers [FREE WEBINAR]

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Is your manufacturing company one of the many in the United States that is experiencing a rapid increase of exported goods?  Exporting creates an opportunity to use a tax savings strategy by creating an Interest Charge – Domestic International Sales Corporation (IC-DISC). Not just for large C-Corporations, an IC-DISC applies to small/medium pass-through entities as well. However, while over 6000 small and medium businesses take advantage of the tax incentives of the IC-DISC, thousands more that are eligible are failing to do so.

Likewise, another tax incentive frequently overlooked by manufacturing companies is the R&D Tax Credit, who presume they must have on-site laboratories or breakthrough ‘white-lab coat’ research to claim the credits. Comparatively, others distress that they will face complex tax calculations or that it will trigger an IRS audit. However, many small businesses can claim the R&D tax credit. Moreover, with the changes to the permanency of the R&D tax credit and the PATH Act, the credit is now more easily available to smaller companies and start-ups.

Therefore, to elaborate on these often disregarded tax incentives, Swanson Reed has teamed up with Export Advisors to provide a FREE Webinar next week on the tips and tools you need for claiming the R&D tax credit and the  IC-DISC in the manufacturing sector. This webinar also includes an interactive Q&A session at the end to answer any questions you may have.

WHEN: Tuesday, August 23, 2016 from 1:00 PM to 2:00 PM (CDT) – Add to Calendar
Cost: Free

Structure:
1:00pm – 1:25pm CDT – R&D Tax Incentives for the Manufacturing Industry
Presenter: Cherie Jones, Tax Director – Swanson Reed
1:25pm – 1:50pm CDT – IC-DISC for the Manufacturing Industry
Presenter: Dave Spray, President – Export Advisors
1:50pm – 2:00pm CDT – Interactive Q&A Session

To ensure you don’t miss out, register for our free webinar on EventBrite:  https://www.eventbrite.com/e/financial-benefits-of-ic-disc-and-rd-tax-credits-for-us-manufacturers-tickets-27137424768 

Gateway to Growth: R&D in the Oil & Gas Industry

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oil-field-76302_960_720From operating our vehicles to warming our homes, oil and gas is one the most commonly used and important commodities in the world. In 2014, oil provided approximately 38% of the world’s energy needs and is directly responsible for about 2.5% of world GDP. Indeed, oil and gas is a leading component of the world’s energy mix, a trend that will no doubt endure for many years to come.

However, in an increasingly technologically-driven world, the oil and gas industry is changing in two fundamental ways. Firstly, with majority of the world’s ‘easy oil’ already exhausted, the importance of utilizing sophisticated technologies to find and produce tomorrow’s hydrocarbons is becoming increasingly imperative. Secondly, high profile disasters such as Shell’s Brent Spar Incident in 1995 or the recent Deepwater Horizon accident (Perrons, 2014), has resulted in a significant shift in the expectations of the oil and gas industry in regards to safety, environmental stewardship and human welfare. Thus, in the face of these challenges, technology and innovation will play a pivotal role in the success or failure of the future of oil and gas firms.

Generating the question, how can oil and gas companies succeed in an industry where supply is limited and expectations are high? Ultimately, the oil and gas economy in the United States is at a critical juncture and innovation is what is going to push the economy forward.

Without a doubt, investing in R&D to create new and improved technologies is vital in enabling the industry to meet global energy demand. Moreover, with traditional forms of energy becoming harder to find, investing in new technologies will be vital in meeting the needs of an increasingly urbanised population and to combat environmental challenges in the decades ahead.

In addition, several companies may already be partaking in R&D activities and may not be aware of how the federal and state governments seek to support them through the Research and Development Tax Credit. Oil and gas companies are eligible for this credit, which presently values at almost 10 billion dollars, for work activities that are often already being conducted.

Below are some examples of qualifying research activities in the oil and gas industry:

  • Offshore structure design
  • Helidecks
  • Development and testing in a variety of areas including shutdown services, plug and abandonment solutions and turnaround
  • Plant design regarding safety, chemicals, pollution control and pressurization
  • Wastewater solutions
  • Designing and improving drilling

If you would like more information, Swanson Reed is hosting a free webinar on May 10th to discuss the benefits of the R&D tax credit for those in the oil and gas industry. Our specialists will be covering the basics of the credit, exploring an oil and gas case study and detailing the qualifying activities in the oil and gas industry. Could the R&D Tax Credit help your business?

If you’re interested in finding out more, register for our free webinar on EventBrite:
https://www.eventbrite.com/e/free-webinar-how-the-rd-tax-credit-can-benefit-the-oil-and-gas-industry-tickets-24977534478

Contact Swanson Reed’s R&D tax specialists today if you would like to know more about the R&D tax credit.

Texas Leads in Tech Employment

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The Texas economy — long a standout and a major source of Lone Star bragging rights — has gained national attention as the “Texas Miracle.” Over the past eight years alone, Texas’ annual job growth has exceeded the nation’s growth by a factor of four, with Texas adding jobs at a robust 2 percent, even in the face of a severe recession. Furthermore,  despite the downturn of Texas’s key oil and gas industry, other sectors are continuing to boom.  In particular, the technology sector in the state is experiencing persistent growth.

In fact, Texas ranks only second to California in number of technology jobs in America. Aside from popular firms like Google, Apple, Dropbox and Oracle — which all recently constructed or extended major campuses in Austin — nearly two dozen California tech companies also repositioned to Texas or opened outposts there since 2014.

Notably, Texas is home to more than 585,000 technology workers across 34,100 businesses. The state’s tech community continues to enjoy rapid growth, adding 13,800 IT positions within the last year. In addition, tech employers in Texas spend more than $58 billion on payroll annually, with IT employees earning nearly double the state’s average earnings at $99,700 annually. Likewise, Texas leads the country with respect to employment in a variety of sectors within the technology sector, including telecommunications, computer and software wholesaling and electronic repair.

Furthermore, due to the nature of the work involved in the IT sector, companies engaged in any type of technology innovation may qualify for significant federal and state research and development (R&D) tax credits.  The Research and Development (R&D) tax credit provides an estimated $10 billion in annual tax savings for U.S. companies; however the credit remains under-claimed by the majority of qualifying businesses. In fact, the Wall Street Journal estimates that a mere 5 percent of qualifying companies claim the credit. Bearing in mind the broad application of the credit and recent changes to the eligibility criteria, the R&D tax credit could be a huge game changer for companies in the IT sector.

It is important to note that the eligibility for the credit is much vaster than assumed and the credit’s definition of “R&D” is more expansive than just white coat research taking place in a lab. In effect, if you are making a product or process faster, cheaper, greener or more efficient — counting nearly all software and technology development done in the U.S. — then you may qualify.

Contact Swanson Reed today if you would like to know more about how the R&D Tax Credit works and if you’re eligible.

Texas Legislature Creates Sales Tax Break for Emergency Preparation Supplies

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doctor-1015624_960_720As heavy rain and flooding plague the Houston area, Texas is preparing to have its first tax-free weekend for emergency supplies.

The first of its kind, Texas has just passed new legislation for a sales tax holiday for emergency preparation supplies. According to Chris Bryan, spokesperson for the Texas Comptroller of Public Account, “There’s a new sales tax holiday it’s called the Emergency Preparation Supplies sales tax holiday. It is really geared toward emergency supplies and this time of year, we’re starting to see some extreme weather coming into the Texas area.”

The details of the tax are:

  • It starts at 12:01AM on April 23rd and runs through midnight on April 25th.
  • No limits have been placed on the number of qualifying items you can buy.
  • Some qualifying items are flashlights, batteries, first aid kits, radios and even some bigger ticket items, such as portable generators and emergency ladders.
  • Non-qualifying items include chainsaws, camping supplies and batteries for motorized vehicles.
  • No certificates or coupons are necessary. You just don’t get charged sales tax at the checkout counter or online.

In addition to this new sales tax, Texas also has an Energy Star sales tax holiday on Memorial Day weekend (May 28-30) for energy-efficient air conditioners, refrigerators, clothes washers and the like. However, the most notable tax break is the Sales Tax Holiday, which runs from Aug. 5 – 7. As in previous years, the law exempts most clothing, footwear, school supplies and backpacks priced under $100 from sales and use taxes, which save shoppers approximately $8 on every $100 they spend.

When evaluating state tax policies, Texas has long been considered one of the most tax-friendly states. This point, combined with the fact that last year Texas was positioned in the top ten states for business, makes the environment for business in Texas particularly enticing. The tax options available for research and development (R&D), in particular, is one of the most generous and helpful taxes available for businesses in Texas. To elaborate, in order to achieve a benefit from R&D in Texas, the taxpayer must elect one of two tax options to which the R&D credit will be applied. Either the Texas franchise tax (up to a 50% cap) or exemption from the sales and use tax. Furthermore, much of the work done on a federal R&D tax credit return applies to a Texas return, so claimants can essentially get two tax credits for one tax workup.

Swanson Reed is a specialist R&D tax firm and has helped many clients across a diverse range of industries. Contact us for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit. 

Claiming the Texas R&D Tax Credit through the Franchise Tax Credit

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The State of Texas adopted Texas House Bill 800 (House Bill 800) providing state tax benefits for engaging in qualified research expenditures in the State of Texas beginning January 1, 2014. In specific, taxpayers in Texas can claim the R&D Tax Credit to offset a portion of their franchise tax or use it towards a sales and use tax exemption on the purchase or lease of depreciable tangible personal property used in qualified research in Texas.

Our latest video tutorial covers the process of claiming the Texas R&D Tax credit through the Franchise Tax Credit and highlights the applicable periods for claiming the credit.

Watch below, or alternatively, watch on YouTube at: https://www.youtube.com/watch?v=e9YF1W6wksE

Claiming the Texas R&D Tax Credit through the Franchise Tax Credit – SwansonReed





This video covers the process of claiming the Texas R&D Tax credit through the Franchise Tax Credit.

Want more quick video tutorials like this?

 

Check out our series so far:

 

Swanson Reed is a specialist R&D tax firm and has helped many clients across a diverse range of industries. Contact us for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit.