Sales and Use Tax
A sales tax is imposed on all retail sales, leases and rentals of most goods, as well as taxable services. The use tax is placed on the storage, use or consumption within the state of Texas of taxable items purchased, leased or rented on which the Texas sales tax has not been paid. The use tax is applicable to taxable items purchased out-of-state and later used in Texas, and to any taxable merchandise or inventory purchased tax-free for resale which was converted to personal use. The state tax of 6.25 percent and any applicable local tax are due for the reporting period in which the item was converted to personal use. Texas state law limits the collection of local sales and use tax to no more than 2 percent. For more information about sales and use tax rates, visit the Texas Comptroller website at www.window.state.tx.us/taxinfo/sales. For a list of sales and use tax exemptions, click here.
The Texas franchise tax is imposed on corporations, limited liability companies (even if directly owned by one person), partnerships (general, limited and limited liability), business trusts, professional associations, business associations and other legal entities that are organized in or that do business in Texas. See Franchise Tax Rule 3.586 for a list of some activities considered to be “doing business in Texas.”
The tax base is the taxable entity’s margin. Margin should equal the least of three calculations based on eligibility: total revenue minus cost of goods sold; total revenue minus compensation; or 70 percent of total revenue. The tax rate is 1 percent for most taxable entities. For entities meeting the following criteria, the tax rate is 0.5 percent:
- the entity is primarily engaged in the retail or wholesale trade under division F or G of the 1987 Standard Industrial Classification (SIC) Manual. Effective for reports originally due on or after January 1, 2012, retail trade includes apparel rental activities classified as industry 5999 or industry 7299 of the 1987 SIC Manual;
- the total revenue from activities in retail and wholesale trade is greater than the total revenue from activities in trades other than the retail and wholesale trade;
- less than 50 percent of the total revenue from activities in retail or wholesale trade comes from the sale of products it produces or products produced by an entity that is part of an affiliated group to which the taxable entity also belongs, except for those businesses under Major Group 58 (eating and drinking establishments);
- and the taxable entity does not sell retail or wholesale utilities, including telecommunications services, electricity or gas.
For an overview of the Franchise Tax, visit the Texas Comptroller’s website at http://www.window.state.tx.us/taxinfo/taxpubs/tx98_806.html or for more specific information visit http://www.window.state.tx.us/taxinfo/franchise/.
An ad valorem tax, or local property tax, is levied on the real property of individuals, proprietorships and corporations, whether domestic or foreign. These local taxes provide the largest source of money local governments use to pay for schools, streets, roads, police, fire protection and many other services. State law establishes the process followed by local officials in determining the value for property, ensuring that values are equal and uniform, setting tax rates and collecting taxes. In Lubbock, the taxing districts include the city, county, various school districts and several other taxing authorities. Most businesses can generally expect their property tax rate to be between $1.96 and $2.15 per $100 valuation depending on the location of the operation
Unitary Tax & Personal Income
In Texas, businesses do not pay a unitary tax, and there is no Personal Income tax.
This executive summary is intended to highlight the key components of the package and provide a brief overview of what is available. LEDA will work with your company to determine eligibility for any funding and/or abatement opportunities, as well as provide assistance throughout the application process.
The Historically Underutilized Business Zones (HUBZone) program helps small businesses in urban and rural communities gain preferential access to federal procurement opportunities. These preferences go to small businesses that obtain HUBZone certification in part by employing staff who live in a HUBZone. The company must also maintain a “principal office” in one of these specially designated areas. The program’s benefits for HUBZone-certified companies include:
- Competitive and sole source contracting
- 10 percent price evaluation preference in full and open contract competitions as well as subcontracting opportunities
- The federal government has a goal of awarding 3 percent of all dollars for federal prime contracts to HUBZone-certified business concerns.
Eight Opportunity Zones exist in the Lubbock Region, which you can read about by clicking here.
Texas has made a name for itself as a business friendly state, so it should come as no surprise that there are plenty of avenues business owners and aspiring entrepreneurs can take advantage of when they bring their big ideas to the Lone Star State.
The 78th Texas Legislature established the Texas Enterprise Fund (TEF) to provide financial resources to help strengthen the state’s economy. The Governor, Lieutenant Governor and the Speaker of the House must unanimously agree to support the use of TEF for each specific project. Projects that are considered for TEF support must demonstrate a project’s worthiness, maximize the benefit to the state and realize a significant rate of return of the public dollars being used for economic development in Texas. Additionally, there are several primary measures that every TEF project must meet in order to be considered for an award. Those include but are not limited to the following:Competition with another state for the project must exist and the business must not have already made a location decision;
- Projected new job creation must be significant – typically creating more than 75 jobs in urban areas or more than 25 in rural areas;
- The new positions must be high-paying jobs – above the average wage of the county where the project would be located;
- Capital investment by the company must be significant;
- The project must have community involvement from the city, county and/or school district, primarily in the form of local economic incentive offers;
- The applicant must be financially sound;
- The applicant’s business sector must be an advanced industry that could potentially locate in another state or country.
For more detailed information about state funded incentive programs, click here. For more information regarding the application or funding process, please contact the Office of the Governor at 512.936.0501.
Texas Product/Business Funds The Texas Product/Business Funds (TP/BF) provides asset-based financing to aid companies coming to the state or currently located in Texas. The Texas Bank for Economic Development administers the TP/BF a fund readily accessible to companies doing business in Texas. Asset-based loans offer companies opportunities to apply their assets toward secure funding for future projects. Any business, locating or expanding in Texas, is eligible to apply through the TP/BF. The TP/BF must be utilized in Texas and can be used toward day-to-day operating expenses or as capital for restructuring, purchasing equipment, more efficient production lines and more. Past TP/BF loans have varied in use and amounts, which have been as low as $225,000 and as high as $40 million. To find out more, email: TexasProductFund@governor.state.tx.us or click here.
Texas Leverage Fund The Texas Leverage Fund (TLF) is an “economic development bank” offering an added source of financing to communities that have passed the economic development sales tax. The Office of the Governor Economic Development and Tourism Division may loan funds directly to a local Industrial Development Corporation (IDC) to finance eligible projects. Sales tax revenues pledged by the IDC need only be sufficient to cover projected annual debt service as specified in the TLF program guidelines. This allows cities to leverage their economic development sales tax and to pursue additional projects. Texas Industry Development The Office of the Governor Economic Development and Tourism Division recently announced that the Texas Small Business Industrial Corporation is accepting applications for loans to be funded through the Texas Industry Development Revolving Loan program.
The Texas Industry Development Revolving Loan Program, provides capital to Texas communities and eligible 501(c)3 corporations at favorable market rates. The program supports eligible tax exempt public purpose projects that stimulate economic development within the community. The loans are available with low cost, variable rate long-term financing with the term of the loan not extending beyond the useful life of the assets and up to bond maturity in 2025. Eligible projects must meet the project definition as described in the Development Corporation Act of 1979, the Texas Industry Development Program Guidelines and all appropriate state and federal regulations as applicable to the program. Examples of public projects include: public facilities; community infrastructure (i.e. water, wastewater, drainage, streets); remediation on public land/facilities; and public transportation. Loan terms are available for participants with a credit rating of an A or above with a term not to exceed December 2025. A project will not be eligible for funding under the program for moving existing jobs from one municipality or county in Texas to another municipality or county within the state. For more information, contact the Office of the Governor at 512.936.6443.
Sales Tax Bonds Sales Tax Bonds do not fall under the volume cap and are eligible to communities that have passed the economic development sales tax. Ineligible projects include for-profit hospitals, multi-family projects and municipal services. Exempt Facility Bonds Bonds can be issued to finance certain facilities such as airports, dock and wharf facilities, mass commuting facilities, high-speed inter-rail facilities or certain qualified hazardous waste facilities (including certain training and storage facilities). There is no limit on the amount of the issue and these issues do not require a reservation under the volume cap. Although the facility must be governmentally- owned, it may be leased or subject to management contracts with the business. Other types of exempt bonds include projects for water, sewage and solid waste facilities, facilities for the local furnishing of electricity or gas, and local district heating or cooling facilities. These types of exempt facility issues must reserve a portion of the volume cap. Exempt facility bonds that are not governmentally-owned may reserve up to $25 million in tax-exempt volume cap allocation each year, however there is no project size restriction. Tax-Exempt Industrial Revenue Bonds Tax-Exempt Industrial Revenue Bonds are designed to provide tax-exempt financing to finance land and depreciable property for eligible industrial or manufacturing projects. The maximum bond amount is $10 million (which can include certain capital and administrative costs). On January 1, 2007, the maximum bond amount increased to $20 million. The Tax Reform Act of 1986 imposes a volume ceiling on the aggregate principal amount of “private activity bonds” that may be issued with the State during any calendar year. For more information, contact the Texas Bond Review Board at 512.463.1741. Texas Military Value Revolving Loan Fund Created by the 78th Legislature and signed into law by Governor Rick Perry, the Texas Military Value Revolving Loan Fund, or the “Revolving Loan Fund” as it has become known, is designed to:
- Assist defense communities in enhancing the military value of a military facility in their area.
- Provide financial assistance to defense communities for job creating economic development projects that minimize the negative effects of a defense base realignment or closure decision that occurred in 2005 or later.
- Provide financial assistance to defense communities for an infrastructure project to accommodate new or expanded military missions resulting from a base realignment and closure decision that occurred in 2005 or later.
The Revolving Loan Fund provides a low cost source of revenue to eligible communities who meet the application criteria. The minimum amount of a loan is $1 million, while the maximum amount of a loan is determined by the availability of funds and the creditworthiness of the applicant. The State may provide up to 100 percent of the cost of the described project, dependent upon the creditworthiness of the applicant. For more information, please contact the Office of the Governor at 512.475.0487.
Texas Capital Fund Infrastructure Program The Texas Capital Fund Infrastructure Program is an economic development tool designed to provide financial resources to non-entitlement communities. Funds from this program can be utilized for public infrastructure (water, sewer, roads, etc.) needed to assist a business, which commits to create and/or retain permanent jobs, primarily for low and moderate-income persons. The minimum award is $50,000 and the maximum is $750,000. The award may not exceed 50 percent of the total project cost. The Texas Department of Agriculture administers the Texas Capital Fund Program. For more information, please call 512.463.4320. Texas Capital Fund Real Estate Development Program The Texas Capital Fund Real Estate Development Program is designed to provide financial resources to non-entitlement communities. Funds must be used for real estate development (acquisitions, construction and/or rehabilitation) to assist a business, which commits to create and/or retain permanent jobs, primarily for low and moderate-income persons. This program encourages business development and expansions located in non-entitlement communities. The minimum award is $50,000 and the maximum is $750,000. The award may not exceed 50 percent of the total project cost. Funds are provided with no interest accruing and with payments based on a 20-year amortization schedule. The Texas Department of Agriculture administers the Texas Capital Fund Program. For more information, please call 512.463.4320. Cancer Prevention and Research General Obligation Bonds On November 6, 2007, Texas voters approved Proposition 15 – HJR 90, the constitutional amendment which allows the State of Texas to establish the Cancer Prevention and Research Institute of Texas (the Institute) and allows the Institute to issue $3 billion in general obligation bonds over ten years to fund grants for cancer research and prevention. The Institute may invest the grants strategically in cancer research, clinical trials and laboratory facility construction in Texas. The Institute will continue to implement the Texas Cancer Plan. For more information, please click here or call 512.463.3190. Defense Economic Adjustment Assistance Grant (DEAAG) The Defense Economic Adjustment Assistance Grant Program (DEAAG), created in 1997, is a job creation grant program designed to assist adversely impacted defense communities that are responding to or recovering from a U.S. Department of Defense Base Realignment and Closure (BRAC) action, or reductions or termination of defense contracts. The program was later expanded to assist defense communities that have been positively affected by BRAC with new or expanded military missions as well as qualified job retention. DEAAG funding is available to local municipalities, counties, defense base development authority, junior college districts and Texas State Technical College campuses, and regional planning commissions representing these communities. Funding is available to meet matching requirements for federal funding or for the purchase of Department of Defense property, new construction, rehabilitation of facilities or infrastructure, or purchase of capital equipment or insurance. Grants awarded may range from $50,000 to $2 million per project. For more information please call 512.475.0487. Moving Image Idustry Incentive Program In 2007, the 81st Texas Legislature enacted House Bill 1634 establishing the Moving Image Industry Incentive Program, and in 2009, the 82nd Texas Legislature enacted House Bill 873, which amended the program in certain respects. Under the legislation, grants to promote industry growth in Texas can be made to applicant production companies. For film and television projects, depending on whether the applicant chooses the “wage option” or the “Texas spend option” and whether certain economically distressed or historically underutilized areas of the state are used by the production, the incentive is available in the form of a cash production grant equal to between 5 and 29.25% percent of qualified in-state spending. Commercial and video game projects are eligible for 5% of eligible spending in the form of a cash production grant. Grants are available upon project completion and submission of proof of such spending to the Texas Film Commission. Both live action and animated projects are eligible. There are no maximum grant amounts. Specific eligibility qualifications for projects including investment thresholds, employment requirements, and content are available through the Texas Film Commission. Click here for more information.
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 Freeport 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 Data Centers 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
business community with local educational institutions and is administered by the Texas Workforce Commission. The goal of the fund is to assist TANF recipients in becoming independent of government financial assistance. The fund makes grants available to eligible public colleges or to eligible private, nonprofit organizations to provide customized job training and training support services for specific employers. A joint application from the employer and the eligible public college and/or eligible private, nonprofit organization is required to be submitted to the Local Workforce Development Board for review and comment prior to approval. For more information, please contact call the Texas Workforce Commission at 512.463.8844. Other Types of Assistance Permit Assistance The Texas Commission on Environmental Quality (TCEQ) and the Office of the Governor Economic Development & Tourism division have established a relationship to assist companies, which may experience unwarranted delays in their environmental permitting process, for projects that could affect job creation or have a high economic impact. Economic Development & Diversification In-State Tuition Incentive The Economic Development and Diversification In-State Tuition Incentive may be offered to qualified businesses that are in the decision-making process to relocate or expand their operations into Texas. The incentive is targeted to assist high-impact projects that are linked to the strategic economic clusters identified in the state. The incentive allows employees and family members of the qualified businesses to pay in-state tuition fees if the individual files with a Texas institution of higher education. Without this incentive designation, a student must reside in Texas for a 12-month period to be entitled to pay the tuition fees of a Texas resident.
Lubbock has become one of the fastest growing cities in Texas, and we have no intent of slowing down. We welcome big ideas, and face every challenge with a solution oriented mentality. If there’s a way to help bolster our economy, we’re here to help.
If a business owner and/or property owner is interested in making updates to a downtown Lubbock building, contact Jorge Quirino with the Lubbock Economic Development Alliance prior to construction for more information related to these grants. His email is firstname.lastname@example.org.
If a business owner and/or property owner is interested in making updates to a building on commercial 34th Street, North University and/or the East side, contact Jorge Quirino with the Lubbock Economic Development Alliance prior to construction for more information related to these grants. His email is email@example.com.
City and County Tax Abatements Section 380.001 (381.001) of the Local Government Code authorizes municipalities (and counties) to offer a range of incentives designed to promote state or local economic development. Specifically, it allows for the provision of loans and grants of city funds as well as the use of city staff, city facilities or city services at minimal or no charge. To establish a loan or grant or to offer discounted or free city services, the city must meet the requirements contained in the Texas Constitution and in applicable Texas statutes. Additionally, cities must review their city charters and any other local provisions that may limit the city’s ability to provide such a grant or loan. To determine the latitude of whether a municipality is able to offer a particular incentive or combination of incentives, local communities should consult their city attorney.
Workforce Solutions South Plains Workforce Solutions South Plains is the local organization with the authority to operate consolidated workforce, employment and human resources services in the 15-county South Plains Region. Their services include recruitment, screening and referral of qualified applicants, assistance in accessing tax incentive programs and customized training. Most importantly, these services are free to businesses. Many of Lubbock’s most successful employers have worked with the agency to provide for and train their workforce. The On-the-Job Training program offers employers a financial incentive to hire motivated job seekers and train them in the specific skills needed by the respective business. New workers learn job-specific skills in a structured “hands-on” environment. The employer can be reimbursed for part of the trainee’s wages during a negotiated training period. Customized Training can be used for new or existing workers. Businesses contribute a portion of the cost of the training as negotiated with the Workforce Solutions Board. Training may be conducted at any of South Plains College’s campus locations, the Byron Martin Advanced Technology Center or on-site at the workplace. For more information on the services that Workforce Solution South Plains can provide businesses, click here. Community Workforce Partnership LEDA is a member of the Community Workforce Partnership, an award-winning organization made up of community leaders, business professionals and workforce and economic developments specialists that work to help and assist companies and local industries with their workforce development issues.
Permit Assistance LEDA and the various permitting organizations in our region have established a relationship to assist companies which may experience unwarranted delays in their permitting process for projects that could affect job creation or have a significant economic impact.