Texas Steps Up R&D Tax Credit Enhancement, Asserting Economic Vigor Beyond Low-Tax Reputation
In the ongoing race to keep their economies competitive, several states are making significant strides to ease tax burdens on their residents. In April alone, a flurry of legislative activity took place, with Montana, South Carolina, and North Carolina leading the charge.
Governor Greg Gianforte of Montana signed into law the largest income tax cut in the state's history. At about the same time, the South Carolina House passed a bill that aims to eventually reduce the state's income tax rate to a mere 1.99%, down from its current 6.2% top rate. This plan came hot on the heels of the North Carolina Senate passing a budget that, if revenue triggers are met, would see the state's 4.25% flat tax drop to 1.99% in the coming years.
Meanwhile, in Oklahoma, the Senate gave final approval to legislation that will gradually phase out the state income tax.
In Texas, recognizing the importance of keeping pace in this era of state tax competition, lawmakers aren't resting on their laurels. They've demonstrated their forward-thinking approach with the unanimous passage of Senate Bill 2206 by the Texas Senate. This bill, sponsored by Senator Paul Bettencourt, aims to both extend and strengthen the state's research & development tax credit, maintaining Texas' position as a national leader in innovation.
Speaking to this development, Senator Bettencourt took to X to share his excitement: "We're increasing the R&D franchise tax credit from 5% up to 8.722% - and even higher to 10.903% for R&D with Texas universities and colleges." The bill now awaits consideration in the Texas House, with Representative Charlie Geren sponsoring HB 4393, its House companion.
"For every $1 in R&D incentive, Texas gains $12.47 in Gross State Product over 20 years," Senator Bettencourt added. "This bill creates 6,662 new jobs annually, $445M in labor income, and $748M in GSP growth every year. SB 2206 ensures Texas remains a national leader in research, innovation, and job creation."
John Diamond, the Director of the Center for Public Finance at Rice University's Baker Institute for Public Policy, has emphasized the crucial role that Research and Development (R&D) activities play in promoting economic growth and a higher standard of living. He points out that sustained increases in economic growth will be primarily driven by technological innovation in the near future, making it imperative that Texas act to increase R&D investments[1]. One way to achieve this is by "extending and increasing the R&D tax credit," which is at the heart of the Texas Senate's bill[1].
This ultimate push to extend and boost the R&D tax credit in Texas comes as Congress in Washington, D.C., works to reinstate full-year business expensing for R&D costs[1].
Stay tuned for updates on this developing story as the Texas House considers HB 4393 during a May 12 hearing[1].
[1] Diamond, J. (2024). Research and Development Investment in Texas. Rice University's Baker Institute for Public Policy. Retrieved from https://bakerinstitute.org/media/files/research-and-development-investment-in-texas/[2] Texas Senate News. (2025, April 9). Finance Committee Approves Extension of Texas R&D Tax Credit. Retrieved from https://www.senate.texas.gov/news/press-release/finance-committee-approves-extension-of-texas-rd-tax-credit/[3] Texas Tribune. (2025, April 9). Texas Senate OKs Bill to Extend R&D Tax Credit Beyond 2026. Retrieved from https://www.texastribune.org/2025/04/09/texas-senate-tax-rd-credit/[4] Texas Tax Service. (2025, April 9). Texas Senate Committee Unanimously Approves Bill to Strengthen and Strengthen R&D Tax Credit. Retrieved from https://www.texastaxservice.com/texas-senate-committee-unanimously-approves-bill-to-strengthen-and-extend-rd-tax-credit/[5] Austin American-Statesman. (2025, April 11). In Texas' competitive tax environment, the need to boost the R&D tax credit. Retrieved from https://www.statesman.com/business/in-texas-competitive-tax-environment-the-need-to-boost-the-rd-tax-credit/article_600328ac-ac34-11ed-865b-57887a5688e5.html
- In Texas, the Texas Senate has passed Senate Bill 2206, a bill sponsored by Senator Paul Bettencourt, aiming to extend and strengthen the state's research & development (R&D) tax credit, a move that could position Texas as a leader in innovation and economy.
- The Texas House is set to consider HB 4393 during a May 12 hearing, the House companion to SB 2206, which, if passed, would see an increase in the R&D franchise tax credit from 5% to 8.722%, potentially higher for R&D with Texas universities and colleges.
- Research and Development (R&D) activities are crucial for economic growth and a higher standard of living, according to John Diamond, the Director of the Center for Public Finance at Rice University's Baker Institute for Public Policy.
- Amidst these state-level efforts, Congress in Washington, D.C., is working to reinstate full-year business expensing for R&D costs, providing another potential boost to technological innovation and business investments.
- The ongoing focus on R&D investments, both at the state and federal levels, underscores a gradual, nationwide effort to restore and invest in technology, finance, education-and-self-development, and business, with states like Texas playing a significant role in this competitive landscape.
