Effective January 1, 2026, Texas has fundamentally restructured its research and development tax incentive framework. The changes enacted through Senate Bill 2206 (SB 2206) represent a significant opportunity for businesses with research activities in Texas.

What SB 2206 Changes for Texas Businesses

Most importantly, SB 2206 eliminates the dual-incentive structure that has existed since 2014, enhancing the franchise tax credit for qualified, Texas-based R&D and repealing the sales tax exemption for depreciable tangible personal property used in R&D activities.

Key enhancements include:

• Higher credit rates: The franchise tax credit rate increases from 5% to 8.722% of qualified research expenses (“QRE”) incurred in Texas. Businesses conducting research in partnership with Texas higher education institutions can claim the credit at an even higher rate of 10.903%.
• Permanent status: The credit is now permanent, providing long-term certainty for strategic R&D planning.
• Refundability provisions: For businesses with limited or no franchise tax liability, including startups, pre-revenue companies, and qualifying veteran-owned businesses, the credit now includes refundability provisions, improving cash flow when it matters most.
• Alignment with federal R&D credit rules: SB 2206 aligns with federal R&D credit standards by directly referencing QREs as reported on Line 48 of IRS Form 6765 attributable to Texas-based research activity. Texas will also follow federal law and audit outcomes for credit calculations, allow IRS-permitted statistical sampling, and follow federal rules for claims made under Accounting Standards Codification (“ASC”) 730 financial statement R&D.

Although the sales tax exemption has been eliminated, the new Texas R&D credit provides significant financial administrative benefits for businesses with Texas-based research activities, increasing the overall incentive value while reducing duplicative recordkeeping. 

How Sagemont Can Help

SB 2206 fundamentally alters the strategic value proposition of conducting R&D in Texas. Businesses that previously elected not to claim the franchise tax credit should reconsider that decision in light of the increased value, potential refundability,  and streamlined compliance afforded by SB 2206.

At Sagemont Group, we help businesses capture credits and incentives at the federal and state level, with a particular focus on federal and state R&D tax credits. We help clients navigate legislative and regulatory transitions, ensuring you understand not just what changed but what it means for your business and how to capture every available benefit.

Learn More About Sagemont R&D Tax Credit Services