Summary of State and Local Incentives and Programs
This summary includes the following program descriptions below. Please contact our office for more information on how these programs can be applied to your project.
DISCLAIMER: The material contained in this summary is provided for informational purposes only and cannot be construed as a commitment. Assumptions are based on creating jobs and providing a capital investment. Total jobs and capital investment have been included as eligible costs for the various incentive programs available. However, actual jobs and capital investment may vary from the assumptions made due to final determination of program eligibility and site location.
Ad Valorem/ Property Tax Exemption
Freeport Tax Exemption
This exemption allows local authorities to exempt from 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 due: 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 Independent School District (ISD) and the La Porte ISD.
Goods-in-Transit Incentive
This 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.
Back to Work Program
Texas employers can receive a wage subsidy for hiring unemployed workers under a two-year program [2010 to 2012] administered by the Texas Workforce Commission. Texas Back to Work offers employers a wage subsidy of up to $2,000 for hiring and/or retaining qualified out-of-work Texans.
Bonds
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, 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 restriction to project size.
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 $20 million (which can include certain capital and administrative costs). These issues must receive a reservation under the State's volume limitation ("volume cap") managed by the Texas Bond Review Board.
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. Generally, the reservation of state ceiling issues is allocated by lottery in October each program year.
For more information on the “volume cap” or the lottery dates, contact the Texas Bond Review Board at 512/463-1741.
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 fifty percent (50%) of the total project cost.
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 fifty percent (50%) of the total project cost. Funds are provided with no interest accruing and with payments based on a 20-year amortization schedule.
* Non-entitlement cities in the Bay Area Houston region include: Clear Lake Shores, Dickinson, El Lago, Friendswood, Kemah, La Porte, Nassau Bay, Seabrook, Taylor Lake Village, and Webster.
** Total Texas Capital Fund participation from both Infrastructure program and Real Estate Development program may not exceed $750,000.
Chapter 380
Section 380.001 of the Local Government Code authorizes municipalities 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 of combination of incentives, local communities should consult their city attorney.
Many of the cities in our region have developed 380 agreements with companies locating in their community.
Economic Development Act
The Texas Economic Development Act was developed to encourage large-scale manufacturing, research and development, renewable energy, 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.
Economic Development Refund
The Texas Comptroller of Public Accounts 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:
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, not to exceed the net state sales and use taxes and state franchise taxes paid or collected and remitted during that calendar year. The refund amount may also be limited by a statewide appropriation per year for this refund program.
Emerging Technology Program
The $200 million Texas Emerging Technology Program is designed to help Texas create jobs and grow the economy over the long-term by expediting the development and commercialization of new technologies and attracting and creating jobs in technology fields that will form the backbone of our economy. The program will work through partnerships between the state, institutions 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:
Enterprise Fund
The Texas Legislature established the Texas Enterprise 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 worthiness, maximize the benefit to the State of Texas and realize 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.
For a complete list of awardees, see the TEF Grant Listing, please view the PDF listing:
http://governor.state.tx.us/files/ecodev/TEF_Listing.pdf
Enterprise Zone Program
Under the statewide cap of 105 projects per biennium a community with less than 250,000 in population may have up to four enterprise projects. A community with 250,000 in population or greater may have up to six enterprise projects. All communities in the Bay Area Houston region have a population under 250,000 except (of course) the City of Houston.
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
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:
Receipts for purchases of building materials and machinery and equipment and payroll information are required to be retained as part of the audit process. (Note: All contracts should separate the costs for building materials and/or equipment from the costs of labor and services in order to be eligible.)
The refund for sales and use tax must be for all eligible items for use at the qualified business site.
Galveston County Property Tax Abatement
Galveston County requires municipal participation before consideration of a tax abatement proposal. Projects located in an unincorporated area would require special consideration from the county.
As of January 2010, Galveston County guidelines for consideration of a project’s abatement application are as follows:
Facilities that Qualify for Abatement: Manufacturing operations wholesale distribution projects, major office operations, new facilities, and in some cases recreational uses that serve a regional population.
Abatable Improvements: Taxes on new buildings, equipment used in the production or manufacturing process, and build-out of an existing facility that has a productive life of ten years or more.
Non-Abatable Improvements: Taxes on land, existing buildings, inventory deferred maintenance of an existing building, and rolling stock.
Qualifications for Tax Abatement: In order to qualify for abatement consideration, the project must be expected to have an construction and taxable value of at least $3,000,000 for all projects except tourism projects located in an area of concentration of Tourist Related Facilities are eligible at $2,000,000.
Harris County Property Tax Abatement
Harris County has a generous tax incentive program for new construction of real property facilities, enabling Commissioners Court to offer as much as 50% tax abatement up to ten years, provided that the proposed projects: (1) increase tax roll value by at least $1 million, (2) create at least 25 new permanent jobs, (3) are competitively sited with locations outside Harris County. Multimillion dollar projects are eligible for abatement based on the formula of $1 million in abatable value for each permanent job created. For example, if 25 permanent jobs are created, a project may be eligible for partial abatement of ad valorem taxes associated with $25 million in new tax roll value.
If a company moves into a leased facility, the Agreement shall be executed with both the lessor (owner) and the lessee.
An applicant's proposed new project as of January 2010 must:
Projects are eligible for property tax abatements of new value, subject to an abatement cap: to be calculated as $1,000,000 per job created / retained times the number of such jobs as required in a tax abatement agreement. Such cap shall not exceed the increased value requirement as set out in the Agreement, and will be adjusted annually. To determine the amount of the abatement each year, the adjusted cap shall be multiplied by up to 50 percent, up to a total of 10 years.
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.
Industrial District Agreements – Houston, La Porte and Pasadena
The industrial district agreements cover de-annexed portions of Houston, La Porte and Pasadena and feature greatly reduced municipal property taxes. Each city has their own set of terms and guidelines for industry development within the district - however the general principle remains the same from district to district.
Companies within an industrial district pay an ad valorum-based fee in lieu of taxes on land, improvements, and tangible personal property. This fee ranges between 15 to 30% lower than the standard ad valorum tax rate - depending on the location of the project.
In return, the City agrees that the Company’s land covered by an IDA:
Also, within the Industrial Districts, the cities have established policies for limited amounts of water and sewer service for specified contract periods. The cities of La Porte and Pasadena also provides ambulance service to the Bayport Industrial District through an agreement with the Bayport Association.
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.
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 must be found to be required or suitable for the promotion of economic development as deemed by the Corporation’s board of directors in the performance of its public purposes, functions and duties.
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.
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. Approximately 500 communities in Texas have adopted the local economic development sales tax. EDT 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 Texas Leverage Fund Program Guidelines. This allows cities to leverage their economic development sales tax and to pursue additional projects.
All cities except El Lago, Houston, and Taylor Lake Village have enacted an economic development sales tax.
Moving Image Industry Incentive Program
In 2007, the 81st Texas Legislature established the Moving Image Industry Incentive Program. Under the legislation, grants to promote industry growth in Texas can be made to applicant production companies.
The incentive is available in the form of a production grant equal to 5% of in-state spending, including wages paid to Texas residents. Grants are available upon project completion to features, television programs, television commercials and video games. Both live action and animated projects are eligible. The maximum grant amounts available after September 1, 2007 are:
Available for review at the Texas Film Commissions website are the specific eligibility qualifications for projects including investment thresholds, employment requirements and content. Specific incentive enhancements related to underused areas are provided.
Pollution Control Equipment Incentive
This Texas constitutional amendment providing an exemption from property taxation for pollution control was approved in 1993. The intent was to ensure that compliance with environmental mandates, through capital investments, did not result in an increase in a facility’s property taxes. 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.
Product Development Fund
The Texas Product Development Fund provides financing to aid in the development, production and commercialization of new or improved products within the state. Products appropriate for the fund are inventions, devices, techniques, or processes that have advanced beyond the theoretical stage and are ready for immediate commercial application.
Preference for funding will be given to the state’s defined industry clusters within emerging technology fields including semiconductors; nanotechnology; biotechnology and biomedicine; renewable energy; agriculture and aerospace. Job creation and job retention within Texas will be considered within funding priorities.
Businesses with unencumbered assets that are available to collateralize loans are suited for further consideration. Use of loan proceeds is flexible including working capital, machinery, equipment, furniture & fixtures and other applications. The Fund is a revolving loan program with capital provided from $25 million in taxable bonds issued in 2005. The Office of the Governor, Texas Economic Development Bank administers the Fund at the direction of the Governor’s appointed nine member board.
Section 108
Entitlement communities may access the Section 108 program through HUD. These communities include Houston, League City, and Pasadena. The program allows entitlement communities the ability to borrow funds guaranteed by Section 108 through pledging their current and future CDBG allocations (up to the loan amount) as security for the loan. HUD provides additional security for the loan (as a loan-loss reserve or debt-service) to reduce the exposure of a community’s CDBG funds. Economic Development Initiative (EDI) provides grants to local governments that can be used to enhance both the security of loans guaranteed through Economic Development Loan Fund and the feasibility of the large economic development and revitalization projects they finance. The guaranteed amount may be extended up to five times the community’s most recent CDBG allocation. Eligible activities include property acquisition; rehabilitation of publicly owned property; economic development activities; installation of public facilities; and other site improvements.
Skills Development Fund
The Skills Development Fund was created to assist Texas public community and technical colleges finance customized job training for their local businesses. Grants are provided by the Texas Workforce Commission 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.
Small Business Fund
The Texas Small Business Fund provides financing to foster and stimulate the development of small and medium sized businesses in Texas. Special Funding preferences will be given to emerging technologies including semiconductors, nanotechnology, biotechnology and biomedicine, renewable energy, agriculture and aerospace.
Additional preference will apply to applicants that have acquired other sources of financing, have formed companies in Texas and are receiving assistance from designated state small business development centers or through the Small Business Innovative Research program (SBIR).
The Fund is designed as a revolving loan program with capital provided from $20 million in taxable bonds issued in 2005. The Office of the Governor, Texas Economic Development Bank administers the Fund at the direction of the Governor’s appointed nine member board.
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% of the electricity or natural gas consumed by the business directly causes a physical change to a product.
Wind and Solar Energy Tax Exemptions and Deductions
This program 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% from the company’s income.
Wind energy qualifies under the term “solar energy” for the exemption and deduction.
Texas property tax code permits a 100% exemption on the appraised value of solar, wind or biomass energy devices installed or constructed for the production and use of energy on-site.