Do Tax Incentives Work? The Case of the Unused Franchise Tax Credits

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Dick Lavine /(512) 320-0222 x 101

February 25, 2005

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In 1999 the Legislature passed SB 441, which created franchise tax credits for research-and-development, capital investment, job creation, and child care spending. Credits that have already been earned under these provisions, but not yet used to reduce franchise tax payments, total $464 million. These credits could be used to reduce state revenue for up to 20 years in the future. This huge backlog may also indicate that companies would have undertaken these activities in the absence of a tax credit, since it may be many years before they receive any benefit from the credits.