The Texas R&D tax credit, explained
Texas offers a franchise tax R&D credit worth 8.722% of qualified research spending above a base amount, refundable for some small companies.
Last verified July 2026 against Texas Comptroller of Public Accounts guidance.
The short answer
Yes. Texas offers a research and development credit against its franchise tax, which is the closest thing Texas has to a corporate income tax. The state has no personal or corporate income tax, so this credit only offsets franchise tax, also called the margin tax.
How the Texas credit works
Texas replaced its older R&D credit with a new version, called Subchapter T, for franchise tax reports originally due on or after January 1, 2026. The standard rate is 8.722% of Texas qualified research spending above a base amount, tied to half of the average of the prior three years. The rate rises to 10.903% for qualified research done under contract with a Texas public or private university.
For most companies the credit is nonrefundable, and total credit used in a year, including any carried forward, cannot exceed 50% of the franchise tax owed before other credits. A newer carve-out lets companies that owe no franchise tax, such as certain small businesses under the no-tax-due threshold or qualified veteran-owned businesses, claim the credit as a refund instead.
How it stacks with the federal credit
Texas' credit stacks with the federal R&D credit, which runs roughly 6% to 10% of qualified spending. Startups under $5 million in revenue can apply up to $500,000 of the federal credit against payroll tax each year, which is often the biggest near-term cash benefit for a pre-revenue Texas company.
Picture a Texas hardware startup with 16 engineers and an average salary of $140,000, or about $2.24 million in wages. If qualified research spending comes to $2 million for the year, and half of the prior three years' average works out to $500,000, the incremental $1.5 million produces about $131,000 in Texas credit at 8.722%.
At a federal rate near 6%, the same $2 million in spending might produce about $120,000 in federal credit, most of it usable against payroll tax right away. The Texas credit adds to that, though it only offsets franchise tax and is capped at 50% of the tax owed for most companies, so a young company with little franchise tax due will carry most of it forward. This is an example, and actual figures depend on wages, base-period spending, and each company's total revenue.
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Eligibility and how to claim it
Any Texas entity that pays franchise tax and does qualified research in Texas can claim the credit, from a software startup to a hardware manufacturer. The research has to meet the same four-part test used for the federal credit.
Companies claim the credit on Form 05-182, the Subchapter T Research and Development Activities Credits Schedule, summarized on Form 05-181 and filed with the franchise tax report. Small companies applying for the refundable version instead file Form 05-183, the Application for the Refundable Credit, along with a copy of federal Form 6765.
Claimship prepares the research study and the supporting numbers behind the credit. Your CPA is the one who files the franchise tax report and the Texas Comptroller forms.
Official source: Texas Comptroller of Public Accounts.
Carryforward and deadlines
There is no separate application window for the standard nonrefundable credit. Companies calculate it and claim it when they file their annual Texas franchise tax report.
Unused nonrefundable credit carries forward for 20 years, with no carryback. Companies applying for the refundable version file Form 05-183 alongside their franchise tax report rather than waiting on a carryforward.