About this programme
This is the Subchapter T Texas franchise tax credit for research and development activities, run by the Texas Comptroller of Public Accounts. The Texas Legislature passed it in 2025, effective January 1, 2026, and it replaced the previous Subchapter M franchise tax credit and a related sales tax exemption for qualified research. The new law dropped the sales tax exemption and changed how the franchise tax credit works.
A taxable entity is eligible for a franchise tax credit based on its qualified research expenses (QRE). Qualified research expense means the portion of the entity's total qualified research expenses, as reported on line 48 of IRS Form 6765, that is attributable to research conducted in Texas.
How it works
How you claim the credit depends on whether your entity owes franchise tax. An entity that owes franchise tax must have filed QRE on IRS Form 6765 with the IRS for any year it wants to claim the credit, then file Form 05-158-A and 05-158-B (Long Form Franchise Tax Report) along with Form 05-181 (Credits Summary Schedule) and Form 05-182 (Subchapter T Research and Development Activities Credits Schedule). Combined groups report their per-entity QRE attributable to Texas on line 8 of Form 05-166 (Texas Franchise Tax Affiliate Schedule), which must match line 1A of Form 05-182.
An entity that does not owe franchise tax may instead be eligible for a refundable credit, but only if it doesn't owe tax because it is a qualified new veteran-owned business, its computed tax is under $1,000, or its annualized total revenue is at or below the No Tax Due Threshold. Entities using the E-Z computation method are not eligible for the refundable credit even if their computed tax is under $1,000. A taxable entity cannot create both a regular Subchapter T credit and a refundable Subchapter T credit from the same QRE in the same year.
To claim the refundable credit, the entity must have filed IRS Form 6765 with the IRS, submit a copy of it to the Comptroller, and file Form 05-183 (Application for Refundable Credit); combined groups also file Form 05-184 (Affiliate List).
Unused Subchapter M credits accrued before January 1, 2026 carry forward and are claimed on lines 8 and 9 of Form 05-181.
A taxable entity is not eligible to create the franchise tax credit, or claim the refundable credit, if it, or any member of its combined group, received a sales tax exemption under Tax Code Section 151.3182 during the period the report covers.
Who can apply
The entity must have filed qualified research expenses on IRS Form 6765 with the IRS for any year it seeks to claim the credit, and the underlying research activities must qualify for the federal R&D credit.
The entity, and any member of its combined group, must not have received a sales tax exemption under Tax Code Section 151.3182 during the reporting period; doing so makes the entity ineligible for either the standard or refundable credit.
How to apply
- File IRS Form 6765 with the federal government reporting your qualified research expenses.
- If you owe franchise tax, file Form 05-158-A and 05-158-B (Long Form Franchise Tax Report) with Form 05-181 (Credits Summary Schedule) and Form 05-182 (Subchapter T R&D Credits Schedule), submitted via Webfile or an approved tax software provider.
- If you do not owe franchise tax and qualify for the refundable credit, file Form 05-183 (Application for Refundable Credit) along with a copy of your IRS Form 6765; combined groups also file Form 05-184 (Affiliate List).
Documents you’ll typically need
- IRS Form 6765
- Form 05-158-A and 05-158-B (Long Form Franchise Tax Report)
- Form 05-181 (Credits Summary Schedule)
- Form 05-182 (Subchapter T R&D Credits Schedule)
- Form 05-183 (Application for Refundable Credit, for non-tax-owing entities)
- Form 05-184 (Affiliate List, for combined groups claiming the refundable credit)
- Form 05-166 (Texas Franchise Tax Affiliate Schedule, for combined groups)
Frequently asked
What changed on January 1, 2026?
The Subchapter M franchise tax credit and its related sales tax exemption for qualified research were repealed, and a new Subchapter T research and development franchise tax credit took effect for franchise tax reports only (the sales tax exemption was not carried forward).
Can a business that owes no franchise tax still get money back?
Yes, if it doesn't owe tax because it's a qualified new veteran-owned business, its computed tax is under $1,000, or its annualized revenue is at or below the No Tax Due Threshold. It must still have filed IRS Form 6765 and cannot be using the E-Z computation method.
Can I claim both the regular and refundable version of the credit in the same year?
No. A taxpayer cannot use the same qualified research expenses to create both a regular Subchapter T credit and a refundable Subchapter T credit in the same year.
What happens to unused credits from before 2026?
Unused Subchapter M carryforwards accrued before January 1, 2026 can still be claimed, on lines 8 and 9 of Form 05-181.
Is there a deadline for the refundable credit application?
Yes. Form 05-183 (and Form 05-184 for combined groups) must be filed by November 15 of the report year, or the year following the accounting period if no report is otherwise required. Forms are not accepted after this deadline except for amendments required by federal qualified-research-expense changes.
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