Short answer. Texas's Subchapter T credit is 8.722 percent of the amount your Texas qualified research expenses exceed half of your average for the three prior tax periods. The rate rises to 10.903 percent when you contract with a public or private college or university and incur research expenses under that contract. A company with no Texas QRE in any of the three prior periods gets a flat 4.361 percent of its Texas QRE instead, or 5.451 percent with a university contract.
Key facts
| Standard rate | 8.722% of Texas QRE above 50% of the prior 3-period average |
|---|---|
| With a university contract | 10.903% on the same base |
| No Texas QRE in any prior 3 periods | 4.361% of Texas QRE (5.451% with a university contract) |
| Annual limit | 50% of franchise tax due before other credits, carryforward included |
| Carryforward | 20 consecutive reports |
| Applies to | Reports originally due on or after Jan 1, 2026 (Tax Code 171.9201 onward) |
How the 8.722 percent works
The credit rewards growth over a moving base, not total spending.
Under Tax Code section 171.9204, the credit for a report equals 8.722 percent of the difference between the qualified research expenses incurred in the period the report is based on and 50 percent of the average for the three tax periods before it. Texas QRE is the part of the total qualified research expenses on line 48 of your federal Form 6765 that is attributable to research conducted in Texas, measured under the federal law in effect for that federal tax year.
Illustrative example: a SaaS company has $1,200,000 of Texas QRE this period and averaged $1,000,000 over the prior three periods. The base is half that average, $500,000. The excess is $700,000, and 8.722 percent of $700,000 is $61,054.
The university rate
Research done under a contract with a college or university earns a higher rate.
If the company contracts with one or more public or private institutions of higher education, as the Texas Education Code defines them, and incurs qualified research expenses under that contract during the period, the rate is 10.903 percent of the difference between all of its qualified research expenses and 50 percent of the prior three-period average of all qualified research expenses. On the same numbers as above, 10.903 percent of $700,000 is $76,321.
Starting without a Texas history
Newer companies skip the base entirely.
If the company had no qualified research expenses in one or more of the three prior tax periods, the credit is 4.361 percent of the qualified research expenses for the current period, with no base subtracted. With a university contract it is 5.451 percent of all qualified research expenses. Illustrative example: a company in its first year of Texas research with $800,000 of Texas QRE earns 4.361 percent of $800,000, or $34,888.
How much you can use, and when you get cash
The rate sets the credit; the limit and your tax bill set how fast it is used.
The total credit claimed on a report, including carryforward, cannot exceed 50 percent of the franchise tax due before other credits. Credit above that limit carries forward for up to 20 consecutive reports. Credits are used in a fixed order: old Subchapter O carryforwards, then Subchapter M carryforwards, then Subchapter T carryforwards, then the current-year credit.
A company that owes no franchise tax because its tax is under $1,000, its revenue is at or below the No Tax Due Threshold, or it is a qualifying new veteran-owned business can take the credit as a refund instead. It files Form 05-183 (and Form 05-184 for a combined group) by November 15 of the report year and submits its Form 6765. Companies using the E-Z computation cannot get the refund, and the same QREs cannot create both a regular credit and a refundable credit in the same year.
One disqualifier applies to both paths. A company that, or whose combined group, received the section 151.3182 sales tax exemption during the period a report is based on cannot claim the Subchapter T credit on that report.
Where the numbers come from
Every Texas figure starts with the federal Form 6765.
Because Texas QRE is carved out of the total on your federal Form 6765, the Texas credit can only be as solid as the federal claim behind it. R&D Binder produces the federal Section 41 documentation that supports Form 6765, and a Texas workpaper that splits the QRE by where the research was done. Your CPA claims the credit on Forms 05-181 and 05-182 with the franchise tax report, and whether your facts qualify is your CPA's call.
More on Texas's R&D credit
The full state overview, the federal Section 41 work it builds on, and related state guides:
Sources
Every claim on this page traces to a primary authority. Each source below is independent and verifiable.
- Texas SB 2206 (89th Legislature), enrolled: Tax Code chapter 171, Subchapter T - Texas Legislature
- Texas Comptroller, Franchise Tax Credit for Research and Development Activities - Texas Comptroller of Public Accounts
- Texas Comptroller Form 05-183, Subchapter T refundable credit application - Texas Comptroller of Public Accounts
- Reed Smith, Texas Legislature overhauls the franchise tax R&D credit (June 2025) - Reed Smith LLP
- Cherry Bekaert, Texas R&D tax credit reform: key changes and how to claim (May 2026) - Cherry Bekaert
- CohnReznick, Texas updates R&D credit, ends sales tax exemption (February 2026) - CohnReznick
- IRS, About Form 6765 - Internal Revenue Service
Get documentation built to survive an exam
R&D Binder produces the federal Section 41 binder and the Texas state workpaper from one engagement, both built to survive an exam.