Texas Enterprise Zone Program
The Texas Enterprise Zone Program is an economic development tool for local communities to partner with the State of Texas to promote job creation and significant private investment that will assist economically distressed areas of the state. Approved projects are eligible to apply for state sales and use tax refunds on qualified expenditures. The level and amount of refund is related to the capital investment and jobs created at the qualified business site.
Under the statewide cap of 105 projects per biennium, a community with less than 250,000 in population may have up to six enterprise projects. Upon a community designating a business as an enterprise project, and upon that project’s designation being approved by the state, the business would be eligible for the following incentives:
State Sales and Use Tax Refunds
Beginning September 1, 2007, an enterprise project is eligible for a refund for all state sales and use taxes paid and used at the qualified business site. The total amount of any refund will continue to be predicated on investment amount and number of jobs created/retained.
The refund can be an amount ranging from a minimum of $2,500 per job to a maximum of $7,500 per job as follows:
- If project investment amount is greater than $40,000 and less than $400,000, then refund amount is $2,500 per job based on a minimum of 10 jobs created/retained;
- If project investment amount is equal to or greater than $400,000 and less than $1 million, then refund amount is $2,500 per job up to a maximum of 25 jobs created/retained;
- If project investment amount is equal to or greater than $1 million and less than $5 million, then refund amount is $2,500 per job up to a maximum of 125 jobs created/retained;
- If project investment amount is equal to or greater than $5 million and less than $150 million, then refund amount is $2,500 per job up to a maximum of 500 jobs created/retained;
- If project investment amount is equal to or greater than $150 million and less than $250 million, then refund amount is $5,000 per job up to a maximum of 500 jobs created/retained;
- If project investment amount is equal to or greater than $250 million then refund amount is $7,500 per job up to a maximum of 500 jobs created/retained;
State Sales & Use Tax Exemptions
Manufacturing Machinery & Equipment
Leased or purchased machinery, equipment, replacement parts and accessories that have a useful life of more than six months, and that are used or consumed in the manufacturing, processing, fabricating or repairing of tangible personal property for ultimate sale, are exempt from state and local sales and use tax. Texas businesses are exempt from paying state sales and use tax on labor for constructing new facilities.
Texas businesses are exempt from paying state sales and use tax on the purchase of machinery exclusively used in processing, packing or marketing agricultural products by the original producer at a location operated by the original producer.
Natural Gas & Electricity
Texas companies are exempt from paying state sales and use tax on electricity and natural gas used in manufacturing, processing or fabricating tangible personal property. The company must complete a “predominant use study” that shows that at least 50 percent of the electricity or natural gas consumed by the business directly causes a physical change to a product.
Texas Economic Development Act
The Texas Economic Development Act was created with the purpose of encouraging large-scale manufacturing, research and development, renewable energy and nuclear and integrated gasification combined cycle electric generation facilities capital investment projects in the State of Texas. It requires companies to invest a specified amount of money to qualify for a tax credit and an eight-year limitation on the appraised value of a property for the maintenance and operations portion of the school district property tax. The local school district must elect to participate in order for the company to recognize this benefit.
The qualifying investment amount is determined on a sliding scale that begins at $100 million for large urban areas and $30 million for rural areas. The qualifying investment amount is reduced for areas with a lower tax base. For more information, please call the Comptroller of Public Accounts at 512.463.3993.
Ad Valorem/Property Tax Exemption
A community may choose to offer the freeport exemption for various types of goods that are detained in Texas for a short period of time. Freeport property includes goods, wares, merchandise, ores and certain aircraft and aircraft parts. Freeport property qualifies for an exemption from ad valorem taxation only if it has been detained in the state for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabricating.
For more information, please visit the following links Texas Constitution Article 8, Section 1-J: http://www.statutes.legis.state.tx.us/Docs/CN/htm/CN.8.htm
Through House Bill 1223, qualified companies may be exempt from state sales taxes for the development, occupancy and operation of certain data centers. Exemptions include the cost of gas and electricity, electrical systems, cooling systems, backup systems, servers, data storage, networking equipment, rack space, fixtures and more.
According to the bill, the data center would have to create at least 20 permanent jobs, not including jobs transferred from within the state, with a salary of 120 percent higher than the average salary in which the data center was built. The owner will also have to make or agree to make a capital investment of at least $150 million in the data center over a five-year period.
Interested parties can view and download an analysis of the bill here.
Goods in Transit Incentive
House Bill 621 of the 80th Texas Legislature amends the Tax Code and the Government Code to add an exemption from ad valorem taxation for goods in transit.
To qualify for the exemption, personal property used for assembling, storing, manufacturing, processing or fabricating purposes would have to be acquired in Texas or imported into Texas and stored at a Texas location in which the owner of the goods does not have a direct or indirect ownership interest. The goods in transit would have to be transported to another location in Texas or out of state no later than 175 days after the property was acquired in or imported into the state. Oil and gas and their immediate derivatives, aircraft and dealer’s special inventories would not qualify for the exemption.
Pollution Control Equipment Incentive
In order to qualify for the Polution Control Equipment Incentive, a facility must first receive a determination from the Texas Commission on Environment Quality (TCEQ) that property is for pollution control purposes. That positive use determination is then provided to the local appraisal district, which must accept the TCEQ’s decision and grant the property an exemption from property taxes.
To be eligible for a positive use determination, the property must have been purchased, acquired, constructed, installed, replaced or reconstructed after January 1, 1994, to meet or exceed federal, state or local environmental laws, rules or regulations. For more information, please call the Texas Commission on Environmental Quality at 512.239.5344.
Renewable Energy Incentives
Wind and Solar Energy Tax Exemptions and Deductions
Tax Code Section 171.056 extends a franchise tax exemption to manufacturers, sellers or installers of solar energy devices. The state also permits a corporate deduction from the state’s franchise tax for renewable energy sources. Business owners may deduct the cost of the system from the company’s taxable capital or deduct 10 percent from the company’s income. Wind energy qualifies under the term “solar energy” for the exemption and deduction under Sections 171.056 and 171.107.
Texas property tax code permits a 100 percent exemption on the appraised value of solar, wind or biomass energy devices installed or constructed for the production and use of energy on-site.
Texas also offers a loan program for eligible efficiency technologies. The “LoanSTAR” program is available to schools, hospitals and local governments. The low interest loans are capped at a $5 million maximum and are required to meet certain technical guidelines including a detailed energy assessment report.
Franchise tax questions: 800.531.5441, ext. 5-9952 or 512.305.9952
Property tax questions: 800.531.5441, ext. 5-9806 or 512.305.9806