Texas R&D Tax Credit Overhaul: What It Means for Innovative Businesses in 2026

Published by EPSA USA | June 2025

Big changes are coming to Texas’s R&D tax credit landscape—changes that could reshape how companies across architecture, engineering, manufacturing, and software industries approach innovation incentives.

On May 28, 2025, the Texas Legislature passed House Bill 3015, a major overhaul to the state’s Research & Development Franchise Tax Credit. Pending Governor Abbott’s signature, the new law will go into effect January 1, 2026, and it brings two major shifts:

1. An enhanced R&D franchise tax credit
2. The repeal of the sales and use tax exemption for R&D property

But perhaps the most impactful change? A long-overdue effort to rein in the unpredictable audit environment that’s discouraged many Texas companies from claiming the credit at all.

What’s Changing in 2026

Here’s a breakdown of the key updates:

🔹 Increased Franchise Tax Credit Rate

The credit rate will increase from 5% to 8.722%, making it far more attractive and valuable—especially for companies with substantial qualifying R&D activities.

🔹 Aligned Definitions and Methodology

The bill adopts the federal Form 6765 definitions for qualifying research expenses and allows taxpayers to elect to follow the federal tax year, creating consistency between state and federal claims. This change will simplify planning and documentation, especially for multistate businesses.

🔹 20-Year Carryforward Retained

The generous 20-year carryforward provision remains unchanged, ensuring that companies can still benefit from the credit even if it can’t be fully used in the first year.

🔹 Clearer Audit Procedures

The legislation introduces more objective standards for evidence, structured audit procedures, and the use of statistical sampling to validate claims—bringing much-needed predictability to a process that has often been considered the “Wild West” of tax audits.

🔹 Refund Option Introduced

A limited refund provision for the credit will now be available—an unprecedented shift in Texas R&D incentive history that could provide more immediate value to eligible businesses.

🔹 Repeal of Sales & Use Tax Exemption

The trade-off: the sales and use tax exemption for R&D equipment will be repealed, meaning companies will no longer be able to claim that exemption on qualifying purchases. However, the boost in the franchise tax credit is expected to outweigh this loss for many taxpayers.

What This Means for Your Business

If you’ve been hesitant to claim the Texas R&D credit due to audit concerns or administrative complexity, 2026 marks a new beginning.

For architecture and engineering firms designing new systems or software developers creating proprietary platforms, these changes offer a more reliable and valuable incentive structure. The alignment with federal rules also means you can leverage your existing documentation and claims processes—no need to reinvent the wheel.

How EPSA USA Can Help

At EPSA USA, we specialize in helping companies maximize R&D incentives with confidence. Our team works alongside clients to:

• Identify all eligible activities under both federal and state rules

• Prepare compliant, audit-ready documentation

• Develop a proactive strategy tailored to the new Texas landscape

Don’t wait until 2026 to get ready. Let’s assess your current R&D investments and build a plan now so you can take full advantage when the new law takes effect.

📩 Contact us today to schedule a consultation.