While Texas has no state income tax, businesses can access meaningful tax credits through the Texas franchise tax system and through federal programs available to Texas businesses. Tax credits directly reduce your tax liability — unlike deductions, which only reduce taxable income. This guide lists the major tax credit programs available to Texas businesses.
Texas Franchise Tax Credits
Research and Development Credit
Texas offers a franchise tax credit for qualified research expenses conducted in Texas. The credit is modeled on the federal R&D tax credit and is available to businesses that incur qualifying research expenses including wages for employees conducting research, supplies used in research, and contract research performed by third parties. The credit is applied against the Texas franchise tax liability. Detailed franchise tax credits guide.
Temporary Credit for Business Loss Carryforwards
Under certain provisions, businesses may carry forward franchise tax credits from prior periods. The specific rules and limitations change with legislative updates, so verify current carryforward provisions with the Texas Comptroller or a tax professional.
Federal Tax Credits Available to Texas Businesses
Research and Development Tax Credit (IRC Section 41)
The federal R&D tax credit is one of the most valuable and broadly applicable credits available. It covers qualifying research activities across virtually all industries — not just technology companies. Manufacturing process improvements, software development, engineering, food science, and product development can all qualify. The credit can offset federal income tax or, for qualifying small businesses, payroll tax liability.
Work Opportunity Tax Credit (WOTC)
WOTC provides a federal tax credit for hiring individuals from targeted groups including veterans, SNAP recipients, ex-felons, and individuals living in designated empowerment zones or rural renewal counties. The credit ranges from $2,400 to $9,600 per qualifying employee, depending on the target group and hours worked.
Employee Retention Tax Credit (ERTC)
While the ERTC was a pandemic-era credit and new claims are generally no longer available for most businesses, some Texas businesses may still have pending or amended claims. Consult a tax professional regarding your specific situation.
Investment Tax Credit (ITC) for Solar and Clean Energy
Texas businesses investing in solar energy systems, energy storage, and other qualifying clean energy property can claim the federal Investment Tax Credit. The credit percentage varies based on the technology and when construction begins. This credit is particularly relevant given Texas's strong solar resources. Energy incentive programs.
Production Tax Credit (PTC) for Renewable Energy
The PTC provides a per-kilowatt-hour credit for electricity generated from qualifying renewable sources including wind. Texas is the leading wind energy state in the country, and many Texas businesses benefit from PTC-supported projects.
New Markets Tax Credit (NMTC)
The NMTC program provides a tax credit for investments in Community Development Entities (CDEs) that serve low-income communities. Texas businesses located in or serving qualifying low-income census tracts may benefit from NMTC-financed projects.
Low-Income Housing Tax Credit (LIHTC)
While primarily relevant to real estate developers, LIHTC is a major tax credit program in Texas administered by the Texas Department of Housing and Community Affairs. It incentivizes the development of affordable rental housing. Real estate tax credits guide.
Historic Preservation Tax Credit
A 20% federal tax credit is available for the rehabilitation of certified historic structures. Texas has the Texas Historic Preservation Tax Credit program as well, providing a 25% state credit against franchise tax for qualified rehabilitation expenditures on certified historic structures.
Opportunity Zone Tax Benefits
While technically tax deferrals and exclusions rather than credits, Opportunity Zone benefits provide significant tax advantages for investments in designated census tracts. Texas has numerous designated Opportunity Zones in both urban and rural areas.
Local Property Tax Programs
Property Tax Abatements
Texas cities and counties can offer property tax abatements under Chapter 312 of the Texas Tax Code. These are not credits against income or franchise tax, but they reduce or eliminate property tax on new improvements for a specified period (up to 10 years). Many Texas cities actively use abatements to attract business investment.
Freeport Exemption
Texas exempts from property tax goods detained in the state for 175 days or less for assembly, storage, manufacturing, processing, or fabrication. This is valuable for distribution, manufacturing, and logistics companies operating in Texas.
How to Determine Which Credits Apply
Tax credits are complex, and eligibility depends on your specific business activities, investments, and tax situation. The most efficient approach is to screen your business against available programs systematically. Our screening report checks your business against 150+ verified programs — including tax credits — and identifies which ones may match. Start your free screening →