State outline of Texas

Texas businesses can access both state franchise tax credits and federal R&D tax credits for qualifying research activities.

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Texas R&D Tax Incentives at a Glance

State Benefits:

  • Franchise tax credit for qualified research expenses
  • Sales tax exemption on R&D equipment and supplies
  • Credit based on qualifying expenditures in Texas

Federal Benefits:

  • Federal R&D tax credit available to all qualifying businesses
  • Payroll tax offset option for eligible startups
  • Can be claimed in addition to Texas state benefits

Key Requirement: Activities must meet the federal four-part test for qualified research

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Texas State R&D Tax Incentives

Texas offers a Research and Development Activities Credit against the state's franchise tax (also known as the margin tax). This credit is available to businesses conducting qualified research and development activities in Texas.

Key features of Texas's franchise tax R&D credit:

  • Available to businesses subject to Texas franchise tax
  • Based on qualified research expenses incurred in Texas
  • Calculated using methodology similar to federal R&D credit principles
  • Can reduce franchise tax liability for eligible companies
  • Tied to activities meeting federal qualification standards

Important considerations:

  • Credit applies specifically to Texas franchise tax obligations
  • Must conduct qualified research within Texas
  • Activities must satisfy federal four-part test for qualified research
  • Documentation requirements align with federal standards

What Qualifies as R&D in Texas?

Research activities must meet all four federal criteria:

New or Improved Business Component

You're developing a new product, process, software, technique, formula, invention, or significantly improving an existing one.

 

Technical in Nature

Your work relies on engineering, physical sciences, biological sciences, or computer science.

 

Eliminates Uncertainty

You're trying to resolve questions about how to achieve something, what design to use, or whether something is capable of working.

 

Process of Experimentation

You're not just guessing; you're following a process. This could mean building prototypes, running simulations, conducting trials, or testing multiple approaches to find what works. Documentation of this experimentation is key.

Examples of qualifying activities:

  • Developing new manufacturing processes or improving production efficiency
  • Creating new software functionality or algorithms
  • Engineering new products or product improvements

 

  • Designing and testing prototypes
  • Developing new formulas or materials
  • Improving existing processes or products through experimentation

What Expenses Qualify for R&D tax credits in Texas?

Icon of a man holding a briefcase.

Wages and Salaries

Compensation for employees directly conducting, supervising, or supporting qualified research in Texas.

Icon of a piece of paper with a pencil on top.

Supplies

Materials and supplies consumed during research and development activities.

Icon of a women typing at a computer.

Contract Research

Amounts paid to third parties to perform qualified research on your behalf (specific requirements apply).

Important notes:

Only expenses related to research conducted in Texas qualify for the state franchise tax credit. Federal credits can include research conducted anywhere in the U.S.

Texas Sales Tax Exemption for R&D

In addition to the franchise tax credit, Texas offers a sales and use tax exemption for tangible personal property used directly in qualified research.

What's exempt:

  • Laboratory and research equipment
  • Computers and software used in R&D
  • Materials consumed in research activities
  • Testing and measurement devices

How to claim: Provide Texas Form 01-339 (Sales and Use Tax Exemption Certification) to vendors when purchasing qualifying items.

Important: Equipment must be used directly in qualified research—not for general business purposes.

TX state R&D Qualified businesses
R&D Tax Credit for Texas Companies

Federal R&D Tax Credit for Texas Companies

Texas businesses can claim the federal R&D credit in addition to state benefits for the same research activities.

Two calculation methods:

  • Regular Research Credit: Based on current spending compared to historical baseline
  • Alternative Simplified Credit: Streamlined calculation using recent averages

Startup benefit: Qualified small businesses can apply federal credits against payroll taxes instead of waiting for taxable income.

Texas's Innovation Economy

Texas maintains one of the nation's largest and most diverse innovation economies:

Energy technology

Oil and gas innovation, renewable energy, battery technology, carbon management

Technology and software

Austin tech hub, enterprise software, cybersecurity, cloud services

Semiconductor and electronics

Major manufacturing operations, chip design, testing equipment

Life sciences

Automation systems, process optimization, quality improvements, production innovation

Aerospace and defense

Solar advancement, battery systems, energy efficiency, sustainability solutions

Advanced manufacturing

Process automation, materials innovation, production technology

How to Claim Texas R&D Tax Credits

For Texas Franchise Tax Credit:

  1. Calculate qualified research expenses incurred in Texas
  2. Complete Schedule F of your Texas Franchise Tax Report
  3. File by May 15 annually (or extended due date)
  4. Maintain supporting documentation

For Sales Tax Exemption:

  1. Complete Form 01-339 at time of purchase
  2. Provide to vendor for qualifying equipment/materials
  3. Keep records of how items are used in research

For Federal R&D Credit:

  1. Complete IRS Form 6765
  2. Attach to your federal tax return
  3. File Form 8974 if electing payroll tax offset (startups)




What Records Should You Keep?

Project Documentation:

  • Descriptions of each research project and its objectives
  • Technical challenges you were trying to solve
  • How you approached solving those challenges
  • Results and outcomes

Technical Materials:

  • Design documents and specifications
  • Test results and lab notes
  • Prototypes and development iterations
  • Meeting notes and technical discussions

Financial Records:

  • Payroll records for research personnel
  • Timesheets or time estimates for research activities
  • Receipts for supplies and equipment
  • Contracts with third-party researchers

Texas-Specific Documentation:

  • Documentation proving research occurred in Texas
  • Sales tax exemption certificates (Form 01-339)
  • Records showing equipment was used in qualified research
businessman or accountant working pointing graph discussion and analysis data charts and graphs and using a calculator to calculate numbers. Business finances and accounting concept

Estimate Your R&D Tax Credit in Minutes

Find out how much your innovative work could earn back in tax credits. Use our quick calculator to estimate your potential savings — no forms, no hassle.

CALCULATE YOUR CREDIT

Saving Money, Spurring Innovation

Every day, companies nationwide further the mission of innovation with new products, processes and initiatives that change the landscape of how we do business. But innovation takes funding, and with that comes a vicious cycle: You need money to grow your business and develop your products and services… but you also need to do those same things to bring money in.

That’s why R&D tax credits were established. Designed to encourage companies like yours to invest in the innovation, creation and improvement of products or processes, R&D tax credits can offset some of the costs associated with research and development — fueling growth and technological advancement.

Pitfalls Texas Companies Should Avoid

Not tracking where research occurs

Only Texas-based research qualifies for state credit

Poor documentation

Lacking contemporaneous records of research activities

Overstating research time

Including project management, sales, or administrative time

Not claiming both credits

Missing either state or federal opportunities

Missing sales tax exemptions

Failing to claim exemption on qualifying equipment purchases

Claiming non-qualifying activities

Including routine development or customer customization

Missing startup benefits

Eligible startups not electing federal payroll tax offset

Can You Claim Credits for Previous Years in Texas?

Yes. Many Texas companies have unclaimed R&D credits from prior years.

Lookback windows:

  • Texas franchise tax credit: Generally 4 years from when tax was due
  • Federal R&D credit: Generally 3 years from return filing date
  • Sales tax refunds: Generally 4 years for overpaid sales tax

Why companies miss credits:

  • Didn't know they qualified
  • Thought only traditional "R&D" activities qualified
  • Lacked proper documentation
  • Weren't aware of the programs

A lookback study can identify and capture these missed opportunities.

WA state R&D lookback window

Watch our latest videos to learn more!

Confused about whether you qualify or how the credits work? Our videos break it all down for you.

Claiming the R&D tax credit can provide significant tax savings, but proper documentation is key to ensuring compliance and maximizing your benefits. Without the right records, your claim could be denied or flagged for an IRS audit. In this video, we’ll cover best practices for R&D tax credit documentation, including: ✅ How to maintain detailed project records ✅ Tracking employee time on R&D activities ✅ Organizing financial records of qualifying expenses ✅ Documenting experiment results and decision-making A well-organized documentation system not only supports your R&D credit claim but also improves overall business operations. Don’t wait until tax season—stay prepared year-round! 💡 Need expert guidance? James Moore’s tax professionals can help ensure your records meet IRS standards and maximize your claim. Contact us today! 🔹 Subscribe for more tax-saving strategies! 🔹 Like & share this video to help others optimize their R&D tax credits! #RDTaxCredit #TaxSavings #ResearchAndDevelopment #RDDocumentation #TaxPlanning #IRSCompliance #SmallBusinessTax #StartupFunding #BusinessTaxes #CPAFirm #TaxCredits #BusinessGrowth #TaxTips #FinancialPlanning #IRSRecords #AuditPreparation #JamesMooreCPA #AccountingAdvice #MaximizeTaxCredits #RDFunding #IRS MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC4xMkVGQjNCMUM1N0RFNEUx
Unlock R&D tax credit savings and reduce your payroll tax liability! Did you know that eligible startups and small businesses can use the R&D tax credit to offset up to $500,000 in payroll taxes annually? If your business isn’t yet profitable, this can be a game-changer—helping you monetize tax credits sooner and improve cash flow. What qualifies? Activities like developing new or improving existing products, processes, or software may be eligible, along with associated costs such as wages, supplies, and contractor expenses. But the election must be made on originally filed tax returns, so timing is critical! At James Moore, we simplify the R&D tax credit process, ensuring you maximize benefits while staying compliant. Don't leave money on the table—reach out today to see how we can help you claim these valuable credits! #RDTaxCredit #PayrollTaxOffset #SmallBusinessTaxSavings #StartupTaxCredits #TaxIncentives #ResearchAndDevelopment #TaxPlanning #BusinessGrowth #StartupFunding #Innovation #TaxDeductions #IRS #AccountingTips #Entrepreneurship #TaxCredits #TaxStrategies #FinancialSuccess #TechStartup #Manufacturing #BusinessTaxPlanning #JamesMooreCPA MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC4wOTA3OTZBNzVEMTUzOTMy
Join R&D tax credit expert Lucia Valenzuela as she breaks down some of the biggest myths surrounding the R&D tax credit! Many believe it’s only for large corporations or tech giants, but in reality, businesses of all sizes and across various industries—like agriculture, manufacturing, and food & beverage—can qualify. Think you need a dedicated R&D department? Think again! Lucia explains why even smaller teams, including engineers and developers, often qualify for this valuable credit. And if you’re concerned about the complexity or IRS audits, she’s here to clear up the confusion and show you how, with the right guidance, claiming these credits can be straightforward. At James Moore, we make the R&D tax credit process simple, ensuring you maximize the benefits you’re entitled to. Don’t miss out on potential savings—let’s talk about how we can help! MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC41MjE1MkI0OTQ2QzJGNzNG
Unlock significant tax savings for your business with the R&D Tax Credit! 💰 Many business owners aren’t aware they may qualify for this valuable federal incentive, which is designed to encourage innovation. Whether you’re developing new products, processes, or software, the R&D tax credit offers a dollar-for-dollar reduction on eligible expenses, such as wages, supplies, and certain contract research costs. But how do you know if your activities qualify? The IRS uses a four-part test: 1. Permitted Purpose – Your project should improve or create a product, process, or technique. 2. Elimination of Uncertainty – Your work must tackle technical uncertainties. 3. Process of Experimentation – Testing and trial methods should be part of your process. 4. Technological in Nature – The project must rely on scientific principles, like engineering. From software companies optimizing applications to startups experimenting with autonomous technology, the R&D credit can support your innovative efforts—even if these innovations are new only to your business! Curious if you qualify? Contact James Moore’s R&D tax specialists today to see how we can help you document your efforts and maximize your credit. MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC4wMTcyMDhGQUE4NTIzM0Y5
Licensed tax attorney and Chief Innovation Officer Lucia Valenzuela explains how your business can benefit from valuable R&D tax credits. These government incentives reward innovation, helping you reinvest in your company's growth through product development, process improvements and more. With years of experience and a proven track record, Lucia and the James Moore team are here to simplify the process and maximize your credits. Discover how you can unlock these benefits and fuel your company's future! MORE R&D TAX CREDIT SERVICES TOPICS LIKE THIS ONE ************************************************************** 🏥 James Moore R&D Tax Credit Services: https://www.jmco.com/tax/r-and-d-tax-credit-services/ 👩‍⚕️ R&D Tax Credit Services Articles on JMCO.com: https://www.jmco.com/articles/research-and-development-tax-credits/ SOCIALIZE WITH US! *************************************************************** ⁠📹 YouTube: https://www.youtube.com/@JamesMooreAndCo 💼 LinkedIn: https://www.linkedin.com/company/james-moore-and-co 🖒 Facebook: https://www.facebook.com/JamesMooreAndCo 🐦 Twitter: https://twitter.com/JamesMooreAndCo
YouTube Video UExyQlhPa0JKMTM1a1NrRmVaQ1M2Z085a0FpTkpYRlBnNC4yODlGNEE0NkRGMEEzMEQy

Get Help Maximizing Your Texas R&D Tax Credits

Our team helps Texas companies identify qualifying activities, calculate credits accurately, and maintain proper documentation.

Texas R&D Tax Credit FAQ

Does Texas have an R&D tax credit?

Yes. Texas offers a franchise tax credit for qualified research activities and a sales tax exemption for R&D equipment and materials.

What's the difference between the Texas credit and federal credit?
Can startups with no profit benefit?
What industries qualify?
Do I need to be a "tech" company?
How much documentation do I need?
What if I've never claimed before?
Can I claim the credit myself?

Access the latest Texas R&D tax credit information and filing requirements:

Texas Comptroller Research and Development Activities Credit

Official guidance on franchise tax credit eligibility and calculation

View Resource

Texas Franchise Tax Report
& Schedule F

Annual franchise tax filing with R&D credit schedule

Download Form

Form 01-339: Sales Tax Exemption Certificate

Certificate for claiming sales tax exemption on R&D equipment and materials

Download Form

Texas Tax Code § 171.651

State statute governing the research and development activities credit

View Statute

Texas Tax Code § 151.318

Sales tax exemption for qualifying research and development

View Statute

IRC Section 41

Federal law defining qualified research activities

View Statute

IRS Form 6765

Federal R&D credit form and instructions

Download Form

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Professional headshot of Lucia Valenzuela.

Lucia Valenzuela

Chief Innovation Officer (CInO)

Lucia is the driving force behind the adoption of new technologies and services at our firm. She stays up to date on advancements and works with firm leadership to develop and implement strategic plans that align with our goal of enhancing the client and employee experience.

Lucia brings to James Moore a decade of experience and forward-thinking leadership in technology, public accounting and tax law matters. A trusted advisor in the field of R&D tax credits, she has successfully guided thousands of companies through the complexities of filing for that credit. Her other notable achievements include the market launch of revolutionary tax software and building a large specialty tax practice at a top 50 accounting firm.

Lucia’s knowledge of technology, strategic partnerships, teambuilding, public accounting and tax law provides our firm with a new and unique perspective on client service and operations. Outside of James Moore, Lucia is active in local bar associations and their respective boards. She also volunteers with Project Youth, Step-Up and other organizations focused on mentoring and empowering underprivileged youth in their journeys toward college.

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John VanDuzer, CPA

Partner

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Kris Hutchins, CPA

Client Service Director

This information serves general educational purposes and does not constitute tax, legal, or accounting advice. Tax laws and regulations change regularly. Texas offers a franchise tax credit for research activities and sales tax exemptions for qualifying research equipment and materials. Federal R&D credit information reflects law as of January 2026 but remains subject to modification. Consult qualified tax professionals regarding your specific circumstances before making decisions based on this information.

Last Updated: January 2026
 Next Review: Quarterly or upon state or federal legislative or administrative changes