August 13, 2026

Texas Just Made Its R&D Credit Permanent

With the passage of SB 2206, Texas has taken a decisive step to strengthen its innovation economy. By permanently extending and enhancing Texas research and development (R&D) incentives, the bill removes uncertainty and makes the Lone Star State a more competitive destination for long-term research investment.

Effective for reports originally due on or after January 1, 2026, the updated credit has no expiration date and replaces the prior sunset uncertainty that had been set to return at the end of 2026, per PWC.

Let’s take a closer look at SB 2206, its changes, and what they mean for companies in tech, biotech, manufacturing, and energy considering Texas for R&D operations.

What Does SB 2206 Change for R&D?

SB 2206 fundamentally reshapes the Texas R&D tax credit in five key ways:

  1. Permanence: The credit no longer expires, eliminating long-term policy risk for investors
  2. Higher rates: The base credit increases from 5% to 8.722% for qualified research expenses (QREs), with up to 10.903% for university partnerships
  3. Refundability: Startups and companies with no franchise tax liability can now receive cash refunds
  4. Carryforward: Unused credits can now be carried forward up to 20 years, providing flexibility for companies at all stages
  5. Federal alignment: The credit now makes QREs directly tied to federal definitions under Form 6765, reducing compliance complexity and audit risk

Together, these changes modernize the incentive structure, making it more value, accessible, and usable for businesses.

Why Does Permanence Matter in R&D Site Selection?

For executives and site selectors, the tax credit’s new permanence is a strategic advantage because it:

  • Eliminates policy risk for long-term R&D investments
  • Enables multi-year capital planning
  • Aligns seamlessly with federal tax strategy
  • Signals that Texas is committed to competing for innovation

In short, SB 2206 turns the Texas R&D credit into a reliable, long-term investment tool rather than a short-term incentive.

Who Benefits Most From the New Texas R&D Credit?

SB 2206 applies directly to companies driving innovation, such as:

These sectors all have high spend and strong opportunities to collaborate with Texas universities—helping them maximize the newly enhanced credit rate.

Texas R&D vs. Competing States

Nearly 29 states offer R&D credits ranging from 5% to 27%, for example:

  • California offers a 15% research credit on qualified expenses over a base amount, but it remains tied to California-based activity and operates within a higher-tax business environment
  • New York offers a refundable life sciences R&D credit of 15% for companies with 10 or more employees and 20% for companies with fewer than 10 employees, but it is limited to qualifying life sciences companies and capped at $500,000 per year
  • Florida offers a 10% R&D credit, but eligible corporations must apply for an allocation, unused credits carry forward for only five years, and the program has historically been subject to a statewide cap

Texas is in a competitive mid-to-upper tier with its 5% to 10.903% and its permanence, refundability, and administrative simplicity.

But the Lone Star State also offers other advantages that make it that much more attractive to R&D companies, such as:

  • No corporate income tax (franchise-based system)
  • Simplified compliance via federal alignment
  • Refundability, which is relatively rare
  • A 20-year carryforward for unused credits, giving companies more time to realize value from long-term R&D investments

Combined with broader Texas business incentives, SB 2206 offers a compelling total value proposition.

How to Plan Your R&D Investment in Texas

Follow these four steps to maximize your SB 2006 benefit:

  1. Evaluate your QRE eligibility
  2. Model the financial impact of the credit
  3. Align with university partnerships to reach higher rates
  4. Engage early with state resources to optimize your strategy, such as

Turning Incentives Into Growth

SB 2206 positions Texas as a serious contender for R&D investment, offering certainty, competitiveness, and scale.

The Texas Economic Development Corporation (TxEDC) helps connect businesses to the right partners and opportunities across the state. If your organization is evaluating where to grow its innovation footprint, now is the time to explore what Texas can offer. Contact TxEDC today if you are interested in learning more about our research and development initiatives.

Frequently Asked Questions About the Texas R&D Credit

What is the Texas R&D tax credit?

The Texas R&D tax credit is a franchise tax credit for companies that conduct qualified research activities in Texas. SB 2206 made the credit permanent, increased the credit rate, aligned QRE definitions with federal rules, and improved usability for startups and growing companies.

Is the Texas R&D tax credit refundable?

Yes. Under SB 2206, the credit is refundable for certain entities that owe no franchise tax, including startups, small businesses, and new ventures that may be investing heavily in R&D before generating taxable income.

What qualifies for the Texas R&D credit?

Generally, qualifying expenses are tied to qualified research activities that meet federal standards under IRC §41 and Form 6765. This may include wages, supplies, and certain contract research costs connected to developing or improving products, processes, software, formulas, or technologies.

How does Texas compare to other states for R&D incentives?

Texas now compares more favorably because the credit is permanent, refundable for eligible entities, aligned with federal rules, and supported by a 20-year carryforward. While states like California, New York, and Florida offer R&D credits, their programs may include narrower eligibility, annual caps, shorter carryforward periods, or more complex application requirements.

Can startups benefit from SB 2206?

Yes. Refundability is especially important for startups because early-stage companies may have significant research costs but little or no franchise tax liability. SB 2206 gives those companies a clearer path to benefit from Texas research and development incentives earlier in their growth cycle.

What are qualified research expenses (QREs)?

Qualified research expenses are costs tied to eligible R&D activity. Under SB 2206, Texas directly ties QREs to the federal Form 6765 and IRC §41 framework, which helps reduce state-specific uncertainty and makes compliance more familiar for companies already claiming the federal R&D credit.