What Changed with the Texas R&D Tax Credit in 2026 and How Should Companies Plan?

‍What Is the 2026 Update for the Texas R&D Credit?

Starting January 1, 2026, Texas implemented a new Subchapter T R&D franchise tax credit, replacing the prior system. Key changes include:

• The old credit and sales tax exemption were repealed
• A single, expanded franchise tax credit now applies
• The credit is based on federal R&D definitions (IRC §41)
• Companies must file federal Form 6765 to qualify

Creating a more standardized system, but also removes flexibility companies previously had.

The Biggest Shift: No More Sales Tax Exemption

Before 2026, companies could choose between:

• A franchise tax credit
• A sales tax exemption on R&D equipment

As of 2026, that choice is now gone.

• The sales tax exemption is eliminated
• All benefits now flow through the franchise tax credit only

This simplifies decision-making, but it also means companies need to maximize the credit itself rather than relying on upfront savings from equipment purchases.

How the New Credit Is Calculated

The updated credit is more valuable than before.

• Standard credit: 8.722% of incremental R&D spend (previously 5%)
• Higher rate: 10.903% for university-partnered research (previously 6.25%)

Calculation is based on:

• Current-year qualified research expenses (QREs)
• Compared against a historical base period

If no historical base exists, a simplified calculation may apply. One important limitation:

• The credit generally cannot exceed 50% of franchise tax liability

Refundability: A Major Improvement

One of the most important updates is expanded access to refunds. Under the new rules:

• Some companies with no franchise tax liability may still receive a refundable credit
• Additional filing requirements apply for refund claims

This is particularly important for:

• Early-stage companies
• Capital-intensive businesses
• Companies investing heavily before profitability

Texas is moving closer to making the credit usable across more business stages.

Alignment with Federal R&D Credits

The new Texas credit is tightly tied to federal filings.

To claim the Texas credit:

• You must file federal Form 6765
• Texas relies on federal definitions of qualified research
• Only Texas-based R&D activity counts

This creates both opportunity and risk:

• Easier to align calculations across jurisdictions
• Harder to claim state credit without a strong federal position

What Qualifies in Texas?

Qualified activities generally include:

• Product or software development
• Process improvement or automation
• Engineering design and testing
• Manufacturing innovation
• Prototype development

The key requirement:

• The work must meet federal R&D criteria and be performed in Texas.

What’s New from a Planning Perspective

1. One Path Instead of Two

Previously, companies chose between an exemption or credit. Now it is time for credit optimization.

This shifts strategy toward:

• Maximizing qualified expenses
• Structuring projects for incremental growth

2. Federal and State Strategy Are Now Linked

You cannot treat Texas as a separate decision anymore.

• Weak federal documentation = weak Texas claim
• Strong federal strategy = stronger state benefit

3. Timing and Filing Matter More

New compliance requirements include:

• Filing specific Texas forms for the credit
• Meeting deadlines for refundable credit applications
• Aligning filings with federal returns

Missing these steps can delay or eliminate benefits.

Common Mistakes Companies Will Make

1. Still Thinking the Sales Tax Exemption Exists

It does not. Planning needs to shift fully to the credit.

2. Not Filing Federal R&D Credits

Without federal Form 6765, you cannot claim the Texas credit.

3. Not Tracking Texas-Based Activity Separately

Only in-state research qualifies for the Texas credit.

4. Treating This as a Filing Exercise

The credit is now more valuable and more structured. Planning matters more than ever.

What’s Current in 2026

Updated as of April 2026

• New Subchapter T credit is fully in effect
• Sales tax exemption is eliminated
• Credit rates increased significantly
• Refundable credit options expanded
• Program aligned closely with federal R&D rules

Texas is now positioning itself as a more competitive R&D state, but with stricter structure.

Practical Takeaway

The Texas R&D credit is no longer a secondary incentive.

It is now a primary planning tool.

Companies that:

• Align federal and state strategy
• Track Texas-based activity
• Understand the new credit structure

Will capture significantly more value. Those that rely on outdated assumptions could miss out.

If your company is performing R&D in Texas, the 2026 changes make it worth reviewing your strategy now.

TaxTaker helps companies align federal and state R&D credits, calculate qualified expenses, and structure claims under the new Texas rules so nothing is missed.

You can get a fast, expert assessment of your eligibility and potential savings, often within a day, so you know exactly how the updated Texas credit applies to your business.

Book a call to review your R&D credit strategy and see what opportunities may be available.