85R4256 TJB/CLG-F     By: Elkins H.B. No. 906       A BILL TO BE ENTITLED   AN ACT   relating to the creation of research technology corporations for   the development and commercialization of technologies owned by   institutions of higher education or by certain medical centers with   members that are institutions of higher education; providing for   tax exemptions; providing a penalty.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Subtitle H, Title 3, Education Code, is amended   by adding Chapter 157 to read as follows:   CHAPTER 157.  UNIVERSITY RESEARCH TECHNOLOGY CORPORATIONS          Sec. 157.0001.  PURPOSE AND FINDINGS. The legislature finds   that the development and commercialization of technology owned by   public and private institutions of higher education and by medical   centers associated with those institutions are critical components   of the educational and research missions of those institutions and   key contributors to the economic development and well-being of this   state. The activities authorized by this chapter directly support   those important public purposes.          Sec. 157.0002.  DEFINITIONS. In this chapter:                (1)  "Contribution" has the meaning assigned by Section   1.002, Business Organizations Code.                (2)  "Institution of higher education" means an   institution of higher education or a private or independent   institution of higher education as those terms are defined by   Section 61.003.                (3)  "Medical center development corporation" means a   nonprofit corporation that is eligible to claim an ad valorem tax   exemption under Section 11.23(j-1), Tax Code, for all or any part of   the corporation's properties.                (4)  "Qualified medical center," with respect to an   institution of higher education, means a medical center development   corporation that includes among its member institutions, as   described in the corporation's books and records, one or more   institutions of higher education, regardless of whether those   institutions of higher education have membership status in the   qualified medical center for purposes of the Business Organizations   Code.                (5)  "Technology" means the application of scientific   knowledge for practical purposes and includes inventions,   discoveries, patents, trade secrets, copyrighted materials, tools,   machines, materials, processes to do work, processes to produce   goods, processes to perform services, processes to carry out other   useful activities, trademarks, and computer software.          Sec. 157.0003.  CREATION OF SPECIAL-PURPOSE CORPORATION.   (a)  Any person having the capacity to be an organizer of a   corporation as provided by Section 3.004, Business Organizations   Code, may create a special-purpose corporation for the exclusive   purpose of developing and commercializing one or more technologies   owned wholly or partly by an institution of higher education. To   create the special-purpose corporation, an organizer of the   corporation must present to the secretary of state written evidence   that the organizer has a license to develop and commercialize a   specific technology owned wholly or partly by an institution of   higher education. The license may be conditioned on the creation of   the special-purpose corporation.          (b)  A person described by Subsection (a) may create a   special-purpose corporation for the exclusive purpose of   developing and commercializing technology owned wholly or partly by   a qualified medical center.          (c)  A special-purpose corporation created under Subsection   (b) may be created in the same form and manner as a special-purpose   corporation created under Subsection (a). To that extent, a   qualified medical center that owns wholly or partly the technology   for which a special-purpose corporation is created under Subsection   (b) is governed by the same provisions of this chapter that are   applicable to an institution of higher education.          (d)  A corporation created under this chapter that engages in   other purposes that are not incidental to the purposes authorized   by this section is not entitled to the benefits of this chapter,   including any tax exemption authorized by Section 157.0008.          (e)  The certificate of formation of a corporation created   under this chapter must state that the corporation is governed by   this chapter and state the name and purposes of the corporation and   other information required by law. Except as otherwise provided by   this chapter, a corporation created under this chapter is governed   by Chapters 20 and 21, Business Organizations Code, and Title 1 of   that code.          (f)  The organizers of a corporation created under this   chapter shall register the corporation with the comptroller.          Sec. 157.0004.  MANAGEMENT OF CORPORATION; RIGHTS OF   CREATING INSTITUTION. (a)  The organizers of a corporation created   under this chapter shall name the persons constituting the initial   board of directors of the corporation.  Directors other than the   initial directors shall be determined as provided by Chapter 21,   Business Organizations Code.          (b)  An institution of higher education that owns wholly or   partly the technology for which a corporation is created under this   chapter must at all times be a shareholder in the corporation. The   institution of higher education shall be issued shares in the   corporation when the corporation is created as agreed on by the   organizers of the corporation according to any contribution of the   institution.          (c)  The institution of higher education described by   Subsection (b) may be issued shares in the corporation in exchange   for the contribution of rights in the technology of the institution   of higher education or of other contractual obligations, as agreed   on by the corporation's board of directors.          Sec. 157.0005.  TECHNOLOGY LICENSING. The institution of   higher education that owns wholly or partly the technology for   which a corporation is created under this chapter may license to the   corporation any technology owned by the institution of higher   education.          Sec. 157.0006.  REQUIRED OPERATIONS IN TEXAS. The principal   offices of the corporation must be located in this state, and more   than 50 percent of any goods produced or services performed by the   corporation must be produced or performed in this state.          Sec. 157.0007.  DURATION. (a)  A corporation created under   this chapter is limited in duration to 15 years. At the expiration   of that period, the corporation may file a restated and amended   certificate of formation under which the corporation continues in   existence as a for-profit corporation governed by Chapters 20 and   21, Business Organizations Code, and Title 1 of that code.  A   corporation that files a restated and amended certificate of   formation as authorized by this subsection is not governed by the   other provisions of this chapter and is not entitled to an exemption   authorized by Section 157.0008.          (b)  Subsection (a) does not limit the time or manner in   which the corporation may be terminated as otherwise provided by   law.          Sec. 157.0008.  TAX-EXEMPT STATUS OF CORPORATION. (a)  This   section applies only to a corporation created under this chapter,   other than a corporation that files a restated and amended   certificate of formation as authorized by Section 157.0007, that:                (1)  is engaged exclusively in developing and   commercializing one or more technologies owned wholly or partly by   an institution of higher education or by a qualified medical   center, including activities that are incidental to developing and   commercializing those technologies; and                (2)  complies with Section 157.0006.          (b)  The corporation is entitled to an exemption from ad   valorem taxation of real and tangible personal property as provided   by Section 11.232, Tax Code.          (c)  The corporation is exempted from the sales and use tax   imposed by Chapter 151, Tax Code, as provided by Section 151.3184 of   that code.          (d)  The corporation is exempted from the franchise tax   imposed by Chapter 171, Tax Code, as provided by Section 171.089 of   that code.          (e)  This section does not limit the eligibility of the   corporation for any other available tax benefit, including a tax   benefit under Chapter 312 or 313, Tax Code.          (f)  The corporation must maintain a complete record of all   taxes for which the corporation would have been liable if the   corporation had not been entitled to the exemptions authorized by   this section.  The corporation shall report that information   annually to the comptroller in the form and manner required by the   comptroller.          (g)  The comptroller shall adopt rules necessary to   implement this section and administer the exemptions under   Subsections (c) and (d).          Sec. 157.0009.  PENALTY FOR NONCOMPLIANCE WITH CORPORATE   OPERATIONS REQUIREMENTS.  (a)  A corporation created under this   chapter that ceases to comply with Section 157.0006 is liable to the   state for a penalty in an amount equal to any taxes, including ad   valorem taxes, for which the corporation received an exemption   under Section 157.0008 for the four calendar years preceding the   year in which the noncompliance began.  The comptroller shall   determine the corporation's liability for the penalty and assess   the amount owed.          (b)  A penalty assessed under this section is due on the date   designated by the comptroller, not later than the 90th day after the   date assessed, and shall be collected in the same manner as a state   tax. A lien exists on any property of the corporation to secure the   payment of any amount assessed under this section. The comptroller   is entitled to collect interest and penalties on the unpaid amount   of a delinquent penalty in the same manner as the manner prescribed   for the collection of a delinquent state tax.  The comptroller by   rule shall establish the methods of payment and shall adopt other   rules necessary to administer and enforce this section.          (c)  Amounts received under this section shall be deposited   to the credit of the general revenue fund.          Sec. 157.0010.  CONFLICT WITH BUSINESS ORGANIZATIONS CODE.   To the extent of any conflict between a provision of this chapter   and a provision of the Business Organizations Code, the provision   of this chapter controls.          SECTION 2.  Subchapter B, Chapter 11, Tax Code, is amended by   adding Section 11.232 to read as follows:          Sec. 11.232.  PROPERTY OWNED BY OR LEASED TO UNIVERSITY   RESEARCH TECHNOLOGY CORPORATION. (a)  In this section,   "institution of higher education," "medical center development   corporation," "qualified medical center," and "technology" have   the meanings assigned by Section 157.0002, Education Code.          (b)  Except as provided by Subsection (c), a corporation that   qualifies as a university research technology corporation as   provided by Subsection (g) is entitled to an exemption from ad   valorem taxation of:                (1)  the real and tangible personal property owned by   the corporation that is used for a purpose described by Subsection   (g)(2); and                (2)  the real property owned by the corporation that   consists of:                      (A)  an incomplete improvement that is under   active construction or other physical preparation to make the   property suitable to be used for a purpose described by Subsection   (g)(2); and                      (B)  the land on which the incomplete improvement   is located that will be reasonably necessary for the corporation's   use of the improvement.          (c)  A qualified university research technology corporation   is not entitled to an exemption from taxation of real or tangible   personal property:                (1)  owned by an organizer or director of the   corporation before the creation of the corporation; and                (2)  subject to taxation in this state before being   devoted exclusively to a purpose described by Subsection (g)(2).          (d)  Notwithstanding Subsection (c), a qualified university   research technology corporation is entitled to an exemption from   taxation of the value of that portion of an improvement that   consists of an expansion of an improvement described by that   subsection if the improvement is devoted exclusively to a purpose   described by Subsection (g)(2).          (e)  A medical center development corporation is entitled to   an exemption from taxation of the corporation's real and tangible   personal property that is leased to or used or occupied primarily by   a qualified university research technology corporation and used   exclusively for a purpose described by Subsection (g)(2).          (f)  Notwithstanding Section 25.07, a qualified university   research technology corporation is entitled to an exemption from   taxation of a possessory interest in property described by   Subsection (e).          (g)  To qualify as a university research technology   corporation for purposes of this section, a corporation must:                (1)  be a corporation created under Chapter 157,   Education Code, other than a corporation created under that chapter   that files a restated and amended certificate of formation as   authorized by Section 157.0007 of that code;                (2)  be engaged exclusively in developing and   commercializing one or more technologies owned wholly or partly by   an institution of higher education or by a qualified medical   center, including activities that are incidental to developing and   commercializing those technologies; and                (3)  be in compliance with Section 157.0006, Education   Code.          SECTION 3.  Section 11.42(d), Tax Code, is amended to read as   follows:          (d)  A person who acquires property after January 1 of a tax   year may receive an exemption authorized by Section 11.17, 11.18,   11.19, 11.20, 11.21, 11.23, 11.231, 11.232, or 11.30 for the   applicable portion of that tax year immediately on qualification   for the exemption.          SECTION 4.  The heading to Section 26.113, Tax Code, is   amended to read as follows:          Sec. 26.113.  PRORATING TAXES--ACQUISITION BY NONPROFIT   ORGANIZATION OR UNIVERSITY RESEARCH TECHNOLOGY CORPORATION.          SECTION 5.  Subchapter H, Chapter 151, Tax Code, is amended   by adding Section 151.3184 to read as follows:          Sec. 151.3184.  UNIVERSITY RESEARCH TECHNOLOGY CORPORATION.   (a)  In this section, "university research technology corporation"   means a corporation to which Section 157.0008, Education Code,   applies.          (b)  A taxable item sold, leased, or rented to, or stored,   used, or consumed by, a university research technology corporation   is exempted from the taxes imposed by this chapter if the item is   classified by the corporation as a capital asset.  An item is   considered to be classified by the corporation as a capital asset if   the item is considered to be a capital asset according to generally   accepted accounting principles adopted by the Financial Accounting   Standards Board and is recognized by the corporation as a capital   asset on the corporation's federal income tax returns.          (c)  The comptroller shall adopt rules necessary to   implement this section, including rules to ensure that a taxable   item with respect to which an exemption from the taxes imposed by   this chapter is granted under this section meets the requirements   of Subsection (b).          SECTION 6.  Subchapter B, Chapter 171, Tax Code, is amended   by adding Section 171.089 to read as follows:          Sec. 171.089.  EXEMPTION--UNIVERSITY RESEARCH TECHNOLOGY   CORPORATION.  (a)  In this section, "university research technology   corporation" means a corporation to which Section 157.0008,   Education Code, applies.          (b)  A university research technology corporation is   exempted from the franchise tax.          (c)  A corporation created as a university research   technology corporation that files at the expiration of the period   described by Section 157.0007(a), Education Code, a restated and   amended certificate of formation as authorized by that section is   no longer exempted from the franchise tax by Subsection (b) on the   expiration of that period.  Unless the corporation is otherwise   exempted from the franchise tax, the date of the expiration of that   period is considered the corporation's beginning date for purposes   of determining the corporation's privilege periods and for all   other purposes of this chapter.          SECTION 7.  Section 11.232, Tax Code, as added by this Act,   applies only to an ad valorem tax year that begins on or after the   effective date of this Act.          SECTION 8.  Section 151.3184, Tax Code, as added by this Act,   does not affect tax liability accruing before the effective date of   this Act. That liability continues in effect as if this Act had not   been enacted, and the former law is continued in effect for the   collection of taxes due and for civil and criminal enforcement of   the liability for those taxes.          SECTION 9.  The change in law made by this Act to Chapter   171, Tax Code, applies only to a report originally due on or after   the effective date of this Act.          SECTION 10.  (a) Except as provided by Subsection (b) of   this section, this Act takes effect January 1, 2018.          (b)  Section 157.0008(b), Education Code, and Section   11.232, Tax Code, as added by this Act, and Sections 11.42(d) and   26.113, Tax Code, as amended by this Act, take effect January 1,   2018, but only if the constitutional amendment proposed by the 85th   Legislature, Regular Session, 2017, authorizing the legislature to   provide for an exemption from ad valorem taxation of certain   property owned by or leased to or by a university research   technology corporation is approved by the voters.  If that   amendment is not approved by the voters, Section 157.0008(b),   Education Code, and Section 11.232, Tax Code, as added by this Act,   and Sections 11.42(d) and 26.113, Tax Code, as amended by this Act,   have no effect.