Important Update: State R&D Tax Credits: Mid-2025 Legislative Changes

Several significant state-level R&D tax credit changes were enacted in mid-2025, creating important planning considerations for businesses heading into 2026.

Texas (SB 2206 – Enacted June 22, 2025)

Texas passed legislation enhancing its franchise tax R&D credit while simultaneously repealing the sales and use tax exemption for R&D equipment, effective January 1, 2026. This means businesses will see an expanded benefit on the franchise side but will lose the upfront savings previously tied to equipment purchases.

Iowa (SF 657 – Enacted June 6, 2025)

Iowa approved a major overhaul of its R&D credit program, replacing the long-standing Research Activities Credit with a new, more targeted framework beginning January 1, 2026. Companies with Iowa operations should prepare for different eligibility requirements and credit calculations under the revised program.

Looking Ahead

Both of these changes will take effect in 2026, but businesses should begin planning in 2025 to understand how they may impact their state tax positions. Companies operating in Texas and Iowa should revisit their R&D documentation and modeling now to prepare for the transition.