TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER O. STATE AND LOCAL SALES AND USE TAXES

34 TAC §3.340

The Comptroller of Public Accounts adopts amendments to §3.340, concerning qualified research, without changes to the proposed text as published in the June 10, 2022, issue of the Texas Register (47 TexReg 3425). The rule will not be republished.

The comptroller amends this section to provide guidance regarding the research and development sales tax exemption.

The comptroller amends the definition of Internal Revenue Code (IRC) in subsection (a)(6) to explain which federal Treasury Regulations are applicable to the 2011 federal income tax year. The comptroller has reconsidered comments received during the 2021 rulemaking process and agrees that the adopted definition is too restrictive. The amended definition includes any Treasury Regulation that a taxpayer could have applied to the 2011 federal income tax year. The amended definition also includes specific examples of Treasury Regulations applicable to the 2011 federal income tax year.

The comptroller amends subsection (d)(5) to remove items that are inconsistent with the changes made to the definition of IRC. The comptroller reletters subparagraph (C) accordingly.

The comptroller received comments regarding adoption of the amendment from Michael Thompson of Ryan. While Mr. Thompson welcomes the proposed revisions, he commented on the existing language of the rule rather than the text proposed for amendment. With one exception described below, Mr. Thompson made the same comments during the process of adopting the previous amendments to this rule and the comptroller addressed the comments at that time. The comptroller's response to each comment has not changed. A summary of the comments and the comptroller's responses can be found in the preamble to the previous amendments, as published in October 15, 2021 issue of the Texas Register (46 TexReg 7048).

Mr. Thompson requests a public hearing. Government Code, §2001.029 (Public Comment) requires a public hearing if a public hearing is requested by: at least 25 persons; a governmental subdivision or agency; or an association having at least 25 members. Ryan is not a governmental subdivision or agency, and it is not an association having at least 25 members. The minimum of 25 persons required to mandate a public hearing has not been met because Ryan was the only person to request a public hearing. The comptroller declines to hold a public hearing.

The amendments are adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2 (State Taxation).

The amendments implement Tax Code, §151.3182 (Certain Property Used in Research and Development Activities; Reporting of Estimates and Evaluation).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on July 15, 2022.

TRD-202202684

Jenny Burleson

Director, Tax Policy

Comptroller of Public Accounts

Effective date: August 4, 2022

Proposal publication date: June 10, 2022

For further information, please call: (512) 475-2220


SUBCHAPTER V. FRANCHISE TAX

34 TAC §3.599

The Comptroller of Public Accounts adopts amendments to §3.599, concerning margin: research and development activities credit, without changes to the proposed text as published in the June 10, 2022, issue of the Texas Register (47 TexReg 3434). The rule will not be republished.

The comptroller amends this section to provide guidance regarding the franchise tax research and development activities credit.

The comptroller amends the definition of Internal Revenue Code (IRC) in subsection (b)(5) to explain which federal Treasury Regulations are applicable to the 2011 federal income tax year. The comptroller has reconsidered comments received during the 2021 rulemaking process and agrees that the adopted definition is too restrictive. The amended definition includes any Treasury Regulation that a taxable entity could have applied to the 2011 federal income tax year. The amended definition also includes specific examples of Treasury Regulations applicable to the 2011 federal income tax year.

The comptroller amends subsection (d)(5) to remove items that are inconsistent with the changes made to the definition of IRC. The comptroller reletters subparagraph (C) accordingly.

The comptroller reorganizes subsection (i)(1) and (2) for readability and amends the language moved from paragraph (2) to paragraph (1) to explain that the combined group is the taxable entity for the purposes of calculating and reporting the credit.

The comptroller revises paragraph (3) to remove the current text restricting credit carryforwards and describes how to determine the credit carryforward when the membership of a combined group changes.

The comptroller amends subsection (m) by explaining that the conveyance, assignment, or transfer of an ownership interest in the taxable entity is not a conveyance, assignment, or transfer of the credit by the taxable entity.

The comptroller received comments regarding adoption of the amendment from Michael Thompson of Ryan and Mike Williams of RSM US LLP (RSM). While Mr. Thompson welcomes the proposed revisions, both he and Mr. Williams commented on the existing language of the rule rather than the text proposed for amendment. With two exceptions described below, the commenters made the same comments during the process of adopting the previous amendments to this rule and the comptroller addressed the comments at that time. The comptroller's response to each comment has not changed. A summary of the comments and the comptroller's responses can be found in the preamble to the previous amendments, as published in October 15, 2021, issue of the Texas Register (46 TexReg 7060).

Mr. Thompson also requests a public hearing. Government Code, §2001.029 (Public Comment) requires a public hearing if a public hearing is requested by: at least 25 persons; a governmental subdivision or agency; or an association having at least 25 members. Ryan is not a governmental subdivision or agency, and it is not an association having at least 25 members. The minimum of 25 persons required to mandate a public hearing has not been met because Ryan was the only person to request a public hearing. The comptroller declines to hold a public hearing.

Mr. Thompson comments that the amendment to subsection (b)(5) that now includes Treasury Regulations related to pilot models is inconsistent with the provision in subsection (b)(8)(A)(iii) explaining that certain sales tax exemptions are allowed for uses that are incompatible with the item also being used in qualified research activities. The pilot model Treasury Regulations referenced relate to the Section 174 Test. These regulations do not affect the other three parts of the Four-Part Test, the definition of "qualified research expenses," or any uses for which sales tax exemptions are allowed. The comptroller declines to modify the rule based on this comment.

The amendments are adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2 (State Taxation).

The amendments implement Tax Code, Chapter 171, Subchapter M (Tax Credit for Certain Research and Development Activities).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on July 15, 2022.

TRD-202202685

Jenny Burleson

Director, Tax Policy

Comptroller of Public Accounts

Effective date: August 4, 2022

Proposal publication date: June 10, 2022

For further information, please call: (512) 475-2220


CHAPTER 9. PROPERTY TAX ADMINISTRATION

SUBCHAPTER H. TAX RECORD REQUIREMENTS

34 TAC §9.3061

The Comptroller of Public Accounts adopts new §9.3061, concerning installment payments of taxes on property not directly damaged in a disaster or emergency area, without changes to the proposed text as published in the June 10, 2022, issue of the Texas Register (47 TexReg 3445). The rule will not be republished.

This new section implements Senate Bill 742, Section 4, 87th Legislation, R.S. (2021). This section closely follows the language in Tax Code, §31.033 so as not to create an undue burden on the taxing units that adopt this installment payment option and to allow them flexibility to create their own policies that comply with the requirements in Tax Code, §31.033.

Subsection (a) provides definitions for terms used in the new section.

Subsection (b) establishes the types of property and taxes to which the new section applies.

Subsection (c) establishes that Tax Code, §31.032(b), (b-1), (c), and (d) apply to the payment of taxes to a taxing unit that has adopted an installment payment option for taxes owed on property described in the new section.

The comptroller did not receive any comments regarding adoption of the amendment.

This new section is authorized by Tax Code, §31.033 (d), which requires the comptroller to adopt rules to implement Tax Code, §31.033.

This new section implements Tax Code, §31.033, concerning Installment Payments of Taxes on Property in Disaster Area or Emergency Area That Has Not Been Damaged as a Result of Disaster or Emergency.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on July 15, 2022.

TRD-202202686

Victoria North

General Counsel for Fiscal and Agency Affairs

Comptroller of Public Accounts

Effective date: August 4, 2022

Proposal publication date: June 10, 2022

For further information, please call: (512) 475-2220