By Mike Rosa, Senior Vice President of Economic Development
Texas companies can continue to grow a bright future for us all thanks to the work of Gov. Greg Abbott and the Texas Legislature.
Gov. Abbott has signed Senate Bill 2206 into law, extending Texas’s research and development tax credit beyond its 2026 expiration date and introducing some new opportunities to help keep our state in the race for high-value innovation jobs and ensure our companies can keep building their new ideas right here in our backyard.
This bill ups Texas’s ante in the global competition for innovation leadership.
SB 2206 prevents the expiration of Texas’s R&D tax credit, which was set to sunset in 2026. By passing this bill, lawmakers skirted a fumble in our state’s ability to lead in innovation and economic ability—and they took the opportunity to enhance the incentive structure.
The legislation, by Sen. Paul Bettencourt and coauthored by Sen. Joan Huffman, with Rep. Charlie Geren serving as the house sponsor, increases the franchise tax credit from 5% to 8.722% for qualified research expenses, with an even higher rate of 10.903% for research conducted through higher education institutions—of which Dallas-Fort Worth has many.
Without this legislation, Texas would have lost a critical tool for attracting R&D investment at a time when other states are aggressively competing for innovation jobs. The enhanced structure now positions Texas competitively with other states—while our previous 5% credit lagged behind states like California (15%) and Michigan (10%), the new rates ensure Texas companies can compete for high-value research projects.
The enhanced R&D credit does come alongside the elimination of the current sales and use tax exemption option for R&D activities, which many companies have found useful as they could choose between a franchise tax credit or a sales tax exemption. SB 2206 streamlines this to focus solely on the franchise tax credit while providing the more robust incentive for most R&D activities.
SB 2206 marks an important “win” for the DRC and our members.
The DRC team started this legislative session with our sights clearly set on securing the R&D tax credit, as our members had told us it was important to them as we developed our legislative agenda.
And thanks to a study by Dr. John Diamond of Rice University’s Baker Institute—commissioned by Texans for Innovation, of which the DRC is a member—we knew that extending and enhancing the R&D tax credit would create more than 113,000 jobs and generate $13.8 billion in additional Gross State Product over the first decade.
The study projects that for every dollar of foregone tax revenue from the R&D incentive, Texas gains $12.47 in gross state product over 20 years. This represents an extraordinary return on investment that will more than pay for itself through increased economic activity.
Looking ahead to a future packed with innovation.
Texas currently ranks 33rd nationally in R&D investment, contributing just 4.3% of U.S. business-funded research and development despite being the nation’s second-largest economy. This legislation helps close that gap by making Texas a more attractive destination for companies making critical decisions about where to locate their research activities.
For many industries, R&D represents the critical “first phase” where ideas and problems are developed into the products and solutions that power our economy. This tax credit helps us seed the future, creating the foundation for continued growth in our region’s innovation ecosystem.
The enhanced R&D tax credit, combined with Texas’ business-friendly environment and North Texas’ talented workforce, positions our region to capture an even larger share of the innovation economy. This is exactly the kind of strategic policy that helps ensure our continued economic leadership.
Does your company stand to benefit from this new tax credit structure? We want to know. Send our public policy team a note.