There are three types of bonds to which access is provided through the state.
Other types of exempt bonds include projects for water, sewage and solid waste facilities, facilities for the local furnishing of electricity or gas, local district heating or cooling facilities. There is no restriction to project size for exempt-facility bonds that are not governmentally owned.
Additional information can be obtained from the Texas Bond Review Board at 512.463.1741.
The Capital Access Fund was established to support the availability of financing for businesses and nonprofit organizations that face barriers in accessing capital or fall outside the guidelines of conventional lending.
Use of proceeds may include working capital or the purchase, construction, or lease of capital assets, which include buildings and equipment. Construction or purchase of residential housing and simple real estate investments (excluding those occupied by the applicant's business), are ineligible uses of capital access proceeds.
A lender must submit a participation agreement to be considered for eligibility to enroll loans under the program. The borrower must apply for a loan with a participating lender with terms negotiated between the borrower and the lender. To be eligible, the borrower must be:
Domiciled in this state or having at least 51% of its employees located in this state
The participating lender has a reserve account in which the funds may be used in case of default of an enrolled loan. The reserve fund is composed of contributions from the borrower, the lender and the state. The financial institution may recover all or part of its contribution in any manner previously agreed upon with the borrower.
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TEXAS CAPITAL FUND
The Texas Capital Fund (TCF) program encourages business development, retention, or expansion by providing funds to eligible applicants. Funds will be awarded for the express purpose of assisting in the creation of new permanent jobs or retention of existing permanent jobs, primarily for low and moderate income (LMI) persons. In order to comply with the national goal of expanding economic opportunities for LMI persons, a minimum of 51 percent or more of all the jobs created or retained by the business must benefit persons who qualify as LMI.
The program is only available to non-entitlement cities. These include Dickinson, El Lago, Friendswood, Kemah, La Porte, Nassau Bay, Seabrook, Taylor Lake Village, and Webster.
Programs under TCF include Downtown Revitalization, Infrastructure Development (water, sewer, roads, etc.), Main Street Improvements, and Real Estate Development (acquisitions, construction and/or rehabilitation of a business location). The minimum award is $50,000 and the maximum is $750,000. The award may not exceed fifty percent (50%) of the total project cost.
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CHAPTER 380
Named after a section of the Texas Local Government Code, Chapter 380 authorizes home-rule municipalities to offer loans and grants of public money and providing personnel and services of the municipality, to promote state or local economic development and to stimulate business and commercial activity in the municipality.
With the exceptions of El Lago, Kemah, and Taylor Lake Village, all municipalities in Bay Area Houston are home-rule municipalities.
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DEVELOPMENT CORPORATION ACT
Economic Development Corporations in Texas are relatively new. The Texas Legislature passed the Development Corporation Act of 1979. The Development Corporation Act (DCA) allows municipalities to create nonprofit corporations that promote the creation of new and expanded industry and manufacturing activity within the municipality and its vicinity. In November 1987, the voters of Texas approved an amendment to the Texas Constitution which provided that expenditures for economic development serve a public purpose and were therefore permitted by law. In 1989, the Texas Legislature amended the DCA by adding Section 4A, which allowed the creation of a new type of development corporation. In 1991, the Texas Legislature made a number of changes to the Section 4A sales tax authorization. It allowed the tax to be adopted at any rate between one-eighth and one-half of one percent (in one-eighth percent increments). It also allowed cities to offer a joint proposition that would authorize both a Section 4A economic development tax and a sales tax for property tax relief.
A 4A Economic Development Corporation (EDC) can utilize proceeds for business airports and port-related facilities. Section 2(10) of the DCA also authorizes expenditures for land, buildings, equipment, facilities and improvements, i.e. infrastructure, that are suitable to promote the following six types of enterprises: manufacturing & industrial facilities, recycling facilities, distribution centers, small warehouse facilities, closed or realigned military bases and related facilities. The Corporation can issue debt that is guaranteed by the receipt of sales tax revenue.
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ECONOMIC DEVELOPMENT ACT
This Act allows school districts to attract new taxable property by offering 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.
In exchange for the appraised value limitation and tax credit, the property owner must enter into an agreement with the school district to create a specific number of jobs and build or install specified types of real and personal property worth a certain amount. The agreement must specify what is expected of each party, including the terms and conditions required by law and provisions to protect the school district.
To qualify, the property must be in a reinvestment zone and must be devoted to manufacturing, research and development, a clean coal project, a gasification project for a coal and biomass mixture or renewable energy generation.
The applicant has a two-year qualifying time period in which to make the required amount of investment. In addition to the eight-year limitation, the applicant may file a separate application for a tax credit for taxes paid in excess of the value limit in either year of the two-year qualifying period.
Important: The school district may choose not to consider the application.
The Economic Development Act provides that the amount of investment and the minimum amount of the value limitation vary according to whether the school district is considered a rural or non-rural district and according to the amount of taxable property value in the school district. Below is a chart of the school districts within Bay Area Houston.
| ISD Name
| Rural Y/N |
Minimum Value |
| Clear Creek ISD |
N |
$100 million |
| Dickinson ISD |
N |
$80 million |
| Friendswood ISD |
N |
$80 million |
| Houston ISD |
N |
$100 million |
| La Porte ISD |
Y |
$30 million |
| Pasadena ISD |
N |
$80 million |
Note: The "Minimum Value" column is both the minimum qualified investment AND the minimum limitation on appraised value.
Example: Using the chart above, if an R&D company wants to apply for a school tax credit from the La Porte ISD within an area designated by Harris County and the La Porte ISD as a reinvestment zone, then the company would need to file with the La Porte ISD showing a minimum investment that exceeds $30 million for the project’s purpose.
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TEXAS EMERGING TECHNOLOGY PROGRAM
Designed to help Texas create jobs and grow the economy by expediting the development and commercialization of new technologies and attracting and creating jobs in technology fields. The program works through partnerships between the state, intuitions of higher education and private industry to focus greater attention on the research, development and commercialization of emerging technology. The Emerging Technology Program is dedicated to three areas:
• Commercialization - for-profit Texas businesses, matching equity investments
• Research Grant Matching - for consortia composed of Texas universities and for-profit businesses, matching non-State-of-Texas grants
• Research Superiority - for Texas public universities, providing funds for recruiting researchers of emerging technologies
Bay Area Houston is an active member of the Gulf Coast Regional Center of Innovation and Commercialization for the Texas Emerging Technology Fund. To date, Bay Area Houston Economic Partnership has sponsored two Gulf Coast companies application for the Emerging Technology Fund.
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TEXAS ENTERPRISE FUND PROGRAM
The Texas Enterprise Fund was established as a “deal-closing” fund 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 the Texas Enterprise Fund for each specific project.
Projects that are considered for Enterprise Fund support must demonstrate a project’s benefit to the State of Texas by realizing a significant rate of return of the public dollars being used for economic development in Texas. Capital investment, job creation, wages generated, financial strength of the applicant, applicant’s business history, analysis of the relevant business sector, and federal and local government and private sector financial support of a project will all be significant factors in approving the use of the Enterprise Fund.
As of June 2007, the Bay Area Houston Economic Partnership has sponsored and successfully landed two awards from the Texas Enterprise Fund, resulting in over $6 million in grants for new projects.
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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 capital investment in economically distressed areas of the state (Census block groups with a poverty level greater than 20%).
Designated projects are eligible to apply for state sales and use tax refunds on qualified expenditures. Qualified expenditures include building materials, machinery and equipment, electricity, gas and tangible property purchased and consumed in the normal course of business, and taxable services.
The level and amount of refund is related to the capital investment and jobs created at the qualified business site. In addition, local communities must offer incentives to participants under the enterprise zone program, such as tax abatement, tax increment financing, one-stop permitting, and other incentives developed by participating communities.
Communities may nominate projects for a designation period up to five years, not including a 90-day window prior to the application deadline. Employment and capital investment commitments must be incurred and met within the five year timeframe.
Projects may be physically located in or outside of an Enterprise Zone:
- If located within a zone, the company commits that at least 25% of their new employees will meet economically disadvantaged or enterprise zone residence requirements.
- If located outside of a zone, the company commits that at least 35% of their new employees will meet economically disadvantaged or enterprise zone residency requirements.
Enterprise zones exist in various communities within Galveston and Harris counties.
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FOREIGN TRADE ZONE
Foreign Trade Zones (FTZs) are sites in or near a U.S. Customs port of entry where foreign and domestic merchandise is generally considered to be in international trade. Goods can be brought into a zone without formal Customs entry or without incurring Customs duties or excise taxes unless and until they are imported into the United States.
FTZs are intended to promote U.S. participation in trade and commerce by eliminating or reducing the unintended costs or obstacles associated with U.S. trade laws. Employment that might normally be shifted to a foreign country is thereby encouraged to remain in the United States.
Zone projects may be at one or multiple sites, a single building, all or a portion of an industrial park, at a deepwater port, or within an international airport. When a firm intends to utilize its own plant or cannot be accommodated within an existing zone, "subzone" status may be granted to the site.
Foreign Trade Zone Details
- Exports and trans-shipments emerge from the zones with full tariff forgiveness and usually free from quota requirements.
- Imports from zones are entered under a procedure giving the importer the choice of paying duties either on the product entered or on its foreign content.
- Admissible goods, not prohibited by law, can be moved into zones for re-export or to await special permits or clearance needed for formal entry.
- Merchandise in zones is not subject to federal excise taxes, and export status is accorded goods placed in zones for export.
- State and local excise taxes on personal property, such as inventory taxes, do not apply to certain goods that are in a zone for bona fide customs reasons (e.g. foreign merchandise and merchandise held for export).
- Other indirect benefits include reduced insurance costs because of tighter security inherent in zones.
- Quota restrictions do not generally apply to goods upon their arrival in a zone.
- Multinational firms manufacturing and marketing items of modern technology have a wider range of choices in the citing of plants and distribution centers.
There are two designated foreign trade zones in the Bay Area Houston Region.
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FRANCHISE TAX CREDITS FOR ECONOMIC DEVELOPMENT
The Texas franchise tax is a privilege tax imposed on corporations, including banking corporations and limited liability companies that are chartered in Texas. The tax is also imposed on non-Texas corporations that do business in Texas.
As of July 2007, companies located in Galveston or Harris counties are not eligible to earn franchise tax credits.
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FREEPORT TAX EXEMPTION
The Freeport tax exemption allows local authorities to exempt ad valorem property taxes all business inventories acquired in or brought into Texas for fabricating, assembling, manufacturing, storing or processing and then exported outside the state within 175 days.
All inventories are covered except oil, gas and petroleum products, with no restriction on the destination of such goods. The goods must remain in the continuous ownership of the person who exports them from the time of their acquisition until the time of their export.
| Sample Inventory Schedule for Freeport Tax Exemption
|
| Day 1
| Inventory arrives in Texas |
| Day 2 - 174
| Inventory stored, assembled, manufactured, fabricated,
processed, repaired or serviced |
| Day 175
| Inventory leaves Texas |
| Inventory Tax
| NONE |
Five cities and two school districts offer the Freeport tax exemption in our region. They are: City of El Lago, City of Friendswood, City of Kemah, City of Houston, City of League City, the Deer Park ISD and the La Porte ISD.
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IN-STATE TUITION FOR EMPLOYEES
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 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.
The program is limited to public institutions only with 236 students receiving waivers in 2005-06. To apply, the applicant or HR department will need to contact the registrar's office on an area campus.
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TEXAS LEVERAGE FUND
The Texas Leverage Fund is available for interim, long-term or gap financing. TLF loans provide flexible financing terms to match the unique needs of communities, with maturities of up to 15 years available. Generally, municipal economic development councils (EDCs) are eligible to borrow four to five times annual sales tax revenues, up to $5 million. TLF loans are low-cost, providing capital to communities at floating Prime Rate, as published in the Wall Street Journal.
Future sales tax revenues serve as collateral for loan repayment with required debt service coverage ratios specified in the Texas Leverage Fund Program Guidelines. Pledged tax collections not needed for actual debt service are available for other projects.
With the exceptions of El Lago, Friendswood, Houston, and Taylor Lake Village, all municipalities in Bay Area Houston utilize a form of economic development sales tax.
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MUNICIPAL & COUNTY BUSINESS INCENTIVE PROGRAMS
Galveston County Tax Abatement
Businesses seeking tax relief from Galveston County may apply for an abatement on their property taxes. Minimum requirements to be considered for an abatement are 15 new/retained jobs and a minimum of $3 million in capital investment.
Additionally, if the project is located within an incorporated area of the County, then the municipality may also offer a tax abatement prior to Galveston County’s consideration. Abatement contracts tend to run for 7 years. If the lessee of a leased facility is granted tax abatement the agreement shall be executed by both the lessor and the lessee.
The total proportion of value to be abated shall be provided on the following schedule based on per cent of Galveston County hires.
Harris County Tax Abatement
Businesses seeking tax relief from Harris County may apply for an abatement on their property taxes. Minimum requirements to be considered for an abatement are 25 new/retained jobs and a minimum of $1 million in capital investment. Additionally, if the project is located within a municipality in Harris County, then the municipality must also offer a tax abatement prior to Harris County’s consideration.
As an example, let’s say you have a project that will bring in 25 new jobs and invest $10 million in capital improvements. Your property taxes for Harris County with the abatement would be about $80,000 per year. Without the abatement, your property taxes would be about $160,000. Abatement agreements with Harris County tend to run for 10 years. If the lessee of a leased facility is granted tax abatement the agreement shall be executed by both the lessor and the lessee.
The total value to be abated shall be no more than 50% of each property taxes assessed each year.
La Porte Industrial District Agreement
The City of La Porte operates two Industrial Districts within its extra-territorial jurisdiction (ETJ); the Battleground Industrial District and the Bayport Industrial District.
Within these Industrial Districts the City has established tax incentives to encourage economic growth and expansion of existing facilities. New companies that locate in these districts receive a rate of 53% of ad valorem taxes. Existing companies that make improvements to their property / infrastructure over and above the base value can look forward to receiving a rate of 30% of ad valorem taxes on their new construction.
Pasadena Industrial District Agreement
The City of Pasadena offers a progressive property tax abatement plan that requires no minimum job requirement and a minimum $1 million capital investment. This policy is extended to new construction and/or upgrades to current facilities. The percentage of tax savings adjusts each year from 100% the first year to 0% after seven years.
Municipal Grant Programs
City of Friendswood Grant Incentives Program
Grant Incentives may be considered at some level for new facilities, expansion or modernization of existing facilities that add new taxable values to the ad valorem tax rolls, and to businesses renovating or occupying existing facilities within the city of Friendswood.
Grants may range from $5,000 up to/can exceed $120,000 depending on the value of the new investment. Grants may be used by the qualifying company for relocation assistance, land and/or building acquisition costs, building improvements or renovation, utility line extension and connections, payment of water and sewer impact fees, extension of public roads, and drainage improvements.
City of League City Grant Incentives Program
The City of League City may provide loans and grants of city funds as well as city employees and equipment to promote economic development projects within the city. Eligible projects may receive sales tax grants, franchise fee grants or utility line extensions.
Examples of League City's use of their municiapl grant program include:
- A municipal grant of $45,230 for water lines and road improvements was provided to United Parcel Service in order to locate the company’s regional distribution facility in League City.
- The city of League City provided for a five-year grant to INEOS equal to the amount the business will spend on personal property taxes for office equipment and build-out of the interior of the building (estimated at over $100,000).
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RENEWABLE ENERGY INCENTIVES
Wind and Solar Energy Tax Exemption and Deduction
Texas Tax Code Section 171.056 provides an exemption from the franchise tax for a taxable entity engaged solely in the business of manufacturing, selling, or installing solar energy and wind energy devices, as defined by Tax Code Sec. 171.107.
HB 3 of the 79th Legislative Special Session amended Tax Code Sec. 171.107 to provide that a taxable entity may deduct from its apportioned margin 10 percent of the amortized cost of a solar energy device.
Wind energy qualifies under the term “solar energy” for the exemption and deduction under Sections 171.056 and 171.107.
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SKILLS DEVELOPMENT FUND
The Skills Development Fund was created to assist Texas public community and technical colleges on funding customized job training for their local businesses. Grants are provided to help companies and labor unions form partnerships with local community colleges and technical schools to provide custom job training. Average training costs are $1,000 per trainee; however, the benefit may vary depending on the proposal.
The focus of customized classes is to develop a higher skill competency which employees can use immediately. The program offers many benefits such as flexible schedules and tailoring of course work as well as holding classes either on site or at the college campus.
On a related note, the Bay Area Houston Economic Partnership received a grant from the Texas Workforce Commission of over $1.4 million to develop aerospace engineering education opportunities at the undergraduate and graduate level that support Johnson Space Center-area employers and the aerospace industry. The emphasis will be on aerospace career pathways, especially dealing with the workforce needs of transitioning from the Space Shuttle to new Crew Exploration Vehicle.
Additionally, our office along with area colleges and universities are pursuing a $2 million grant opportunity for additional training funds to be utilized in cluster industries such as aerospace and defense, biotechnology, IT, and the chemical industry.
Workforce concerns are one of the top priorities of the region and BAHEP will continue to develop relationships with community colleges and related partners to ensure skills training needs are met for our future.
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SMALL BUSINESS INDUSTRIAL REVENUE BOND PROGRAM
The State of Texas Industrial Revenue Bond Program (IRB) is designed to provide tax-exempt or taxable financing for eligible industrial or manufacturing projects as defined in the Development Corporation Act of 1979 (Act). The Act allows cities, counties, conservation and reclamation districts to form nonprofit industrial development corporations (IDCs) or authorities on their behalf. The purpose is to provide bonds for projects within their jurisdictions.
The IDC acts as a conduit through which monies are channeled. Generally, bond debt service is paid by the business under the terms of a lease, sale or loan agreement. As such, it does not constitute a debt or obligation of the governmental unit, the IDC or the State of Texas.
The IDC issuing the bonds must pass a declaration of official intent resolution (tax-exempt only); a bond resolution approving the project; set the bond amount; and make findings required by state law. In addition, the governmental unit of the IDC must pass a resolution that approves the corporate resolution and the project. All terms of the bond sale are negotiated among the appropriate parties and documents are prepared by legal counsel.
The IDC submits an application to the Economic Development and Tourism Division of the Governor's Office (OOGEDT) and the Office of the Attorney General simultaneously. However, the Attorney General will not give final approval until they receive an approval letter from the OOGEDT. Once all approvals have been granted, the IDC can issue the bonds and finance the project from the proceeds.
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STATE SALES and USE TAX EXEMPTIONS
Companies may qualify for certain sales & use tax exemptions by the State Comptroller in the following areas:
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% of the electricity or natural gas consumed by the business directly causes a physical change to a product.
State Franchise and Sales/Use Taxes
Additionally, the Texas Comptroller offers a refund of State franchise and sales/use taxes paid by companies owning certain abated property. A company who meets the following three conditions may apply for a refund:
- Paid property taxes to a school district on property that is located in a reinvestment zone. Since January 2002, there were 17 reinvestment/enterprise zone agreements with various municipalities designated in Galveston and Harris counties. The average size of the zone for business properties was 10.5 acres. One of the 17 zones designated were in a state-designated enterprise zone.
- The city or county, but not the school district, must have granted a tax abatement for the owner’s property.
- Is not in a tax abatement agreement with a school district.
The refund is equal to the amount of property taxes that would have been paid had the company entered into a school district abatement agreement with terms identical to the city or county abatement agreement.
Additionally, many items purchased, used, rented or repaired during the studio master recording process are exempt from the state sales and use tax, as well as local sales and use taxes. A producer may claim 100 percent exemption from state and local sales and use taxes on qualifying machinery and equipment purchased, repaired, leased or rented and used directly in the production of audio recording masters. If the equipment is exempt, any parts, repair or maintenance labor is also exempt.
Similar exemptions are available to film producers.
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TAX RELIEF FOR POLLUTION CONTROL PROPERTY
Companies wishing to apply for tax relief for their efforts in controlling pollution can apply for and potentially receive a positive use determination from the Texas Commission on Environmental Quality (TCEQ). The determination can then be filed with the local appraisal district to receive a property-tax exemption.
Important: The intent of this program is to ensure that capital investments undertaken to comply with environmental regulations do not result in an increase in property taxes.
Types of Property that Are Eligible
Property must be wholly or partly used for pollution control to be eligible. The following specific types of property are also eligible for determination:
- Dedicated-purpose vehicles used solely for pollution control (vacuum trucks, street sweepers, surface-watering trucks, spill-response vehicles);
- Land with pollution control property (e.g., the actual square footage containing a baghouse, scrubber, settling pond, or wastewater containment); and
- Used equipment as per TCEQ’s predetermined equipment list.
Types of Property Not Eligible
The following types of property are not eligible:
- Motor vehicles
- Residential property
- Property for recreational, park, or scenic uses
- Property subject to a tax-abatement agreement executed before January 1, 1994.
- Manufactures or produces a product used in pollution control; or
- Provides a service that monitors, controls, or reduces pollution.
While land is eligible, only the part that actually contains the pollution control property is eligible; land used solely as a buffer zone is not eligible.
Companies that have applied for and received tax exemptions in the Bay Area Houston region include Rhodia, Shell Chemical, Rohm & Haas, and Exxon Mobil.
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