Texas R&D Tax Credit (Subchapter T)
Texas Comptroller of Public Accounts
Credit on Texas QRE
R&D tax credit on Texas-located research costs
Texas franchise tax credit for qualified research expenses (QRE) conducted in Texas. As of January 1, 2026, the old Subchapter M credit and the §151.3182 sales-use tax exemption were both repealed and replaced by a new Subchapter T credit. Eligibility now requires the entity to have filed IRS Form 6765 with the IRS for each tax year claimed. Certain entities with zero or minimal franchise tax liability may claim a partial refundable credit.
- Funding type
- Tax Credit
- Level
- State
- Amount
- Credit rate not published on official Comptroller page — statutory rate set in Texas Tax Code §171.9201 et seq. (Subchapter T). Old Subchapter M rate was 5% of incremental QRE; new rate requires direct statutory lookup. Refundable credit available for qualifying entities (no-tax-due threshold, new veteran-owned businesses, computed tax < $1,000).
- Realistic amount
- Highly variable — depends on Texas-located QRE and franchise tax liability. Most profitable mid-size manufacturers and t…
- Deadline
- Annual — claimed on Texas franchise tax return for the applicable report year (e.g., 2026 report year covers Jan 1–Dec 31, 2025 activity for most calendar-year filers). Credit computed on Form 05-182; refundable portion on Form 05-183.
- Status
- active
- States
- TX
- Payment model
- tax offset
Who qualifies
- Taxable entity subject to Texas franchise tax (corporations, LLCs, partnerships, trusts — not sole proprietors or general partnerships)
- Conducted qualified research activities within Texas during the report year
- Filed IRS Form 6765 (Credit for Increasing Research Activities) with the IRS for each tax year claimed under Subchapter T — NEW requirement effective January 1, 2026
- Not filing using the E-Z computation method (E-Z filers are ineligible for the refundable credit)
- Not a combined group member claiming the credit through a different reporting entity
- For refundable credit: entity must be (a) a qualified new veteran-owned business, (b) have computed franchise tax liability < $1,000, or (c) have annualized total revenue ≤ the No Tax Due Threshold (currently $2.47M for report year 2025; adjusted annually for inflation)
Hard requirements
- Must be incorporated
What it covers
Eligible expenses
- Wages paid to employees for performing, supervising, or directly supporting qualified research in Texas
- Supplies consumed in qualified research activities (not capital assets)
- 65% of amounts paid to third-party contractors for qualified research conducted in Texas (contract research expenses)
- Amounts paid to rent or lease computers used in the conduct of qualified research in Texas
- Qualified research expenses as defined under IRC §41(d) as of December 31, 2011 (Texas uses a frozen federal reference date)
Ineligible expenses
- Research funded by a government grant, contract, or cooperative agreement (funded research is excluded under §41)
- Social sciences, arts, humanities research
- Market research, advertising, consumer preference testing
- Research conducted outside Texas (only Texas-located QRE counts)
- Routine data collection and quality control that does not meet IRC §41 four-part test
- Management studies or efficiency improvements that don't involve technological uncertainty
- Research after commercial production begins
- Capital equipment purchases (only supply consumables; depreciation not included)
- Entities using the E-Z computation franchise tax method are ineligible for refundable credit; standard credit use is also restricted
How to apply
-
1
File federal IRS Form 6765
Compute and file IRS Form 6765 (Credit for Increasing Research Activities) with your federal tax return for each year you intend to claim the Texas Subchapter T credit. This is a mandatory prerequisite under the new law — Texas will not accept the credit without the federal form on file.
~8 hrs
-
2
Identify Texas-located QRE
Determine the portion of your IRS Form 6765 Line 48 (total qualified research expenses) attributable to research conducted in Texas. Texas QRE is the Texas-located share using the same IRC §41 QRE definitions: wages for qualified services, supplies, and 65% of contract research (with a research-in-Texas requirement). Computer rental for research also qualifies.
~4 hrs
-
3
Complete Form 05-182 (R&D Activities Credits Schedule)
Use the new Subchapter T Form 05-182 to compute your Texas R&D credit. This replaced the old Form 05-178 (Subchapter M). The form applies the statutory credit rate to your Texas QRE and produces a credit amount to carry onto your franchise tax report. Keep IRS Form 6765 documentation in your records to substantiate the Texas claim.
~3 hrs
-
4
Complete Form 05-183 if claiming refundable credit
If your entity qualifies for the refundable portion (veteran-owned startup, computed tax < $1,000, or revenue ≤ No Tax Due Threshold), also complete Form 05-183 (Application for Subchapter T Refundable Credit). This is a separate form from the standard credit schedule.
~2 hrs
-
5
File with Texas franchise tax report
Attach Forms 05-182 (and 05-183 if applicable) to your annual Texas franchise tax report (Form 05-102 or 05-169). The credit offsets your computed franchise tax liability. File by May 15 or apply for an extension. Retain all supporting documentation — Texas Comptroller conducts R&D credit audits.
~2 hrs
Major change effective Jan 1, 2026: the Subchapter M credit and §151.3182 sales-use tax exemption were repealed; Subchapter T is now the only path. Critical trap: Subchapter T requires filing IRS Form 6765 federally as a prerequisite — companies that skipped the federal credit are locked out of the Texas credit. The partial refundability is new: companies below the No Tax Due Threshold ($2.47M annualized revenue for 2025) can receive an actual cash refund.
Deadline & timing
Texas franchise tax returns are due May 15 each year (with extensions available). The Subchapter T credit is claimed on the annual franchise tax report. Entities must have filed IRS Form 6765 for each year claimed before claiming the Texas credit.
Programs that stack well
- Federal Rd Tax Credit Section 41
- Texas Enterprise Fund
- Doe Sbir
- Nih Sbir
Related programs
Last reviewed 2026. GrantCompass is an independent funding-discovery tool and is not affiliated with any government agency. Always confirm details on the official program page.