Mon, May 19, 2014

Texas Economic Development Property Tax Legislative Update

Chapter 313 Legislative Background

In 2001, in response to several high-profile, capital-intensive economic development projects deciding to locate outside the state, the 77th Texas Legislature enacted House Bill 1200, creating Tax Code Chapter 313, the Texas Economic Development Act. Effective January 1, 2014, the Act allowed school districts to attract new, taxable property and create jobs by offering a value limitation for a period of 10 years, beginning January 1 of the year following the application date or the date commercial operations begin at the site of the project.

Chapter 313 Program Overview

In the value limitation agreement, a company must make a minimum investment, which varies by school district, based on a financial formula applied to each district, and supplemental payments to the district on a per-student basis. The company must also create a minimum number of jobs that meet certain criteria, including an average annual wage 10% above the average for the specified region. The State of Texas reimburses the local school district for any loss of tax revenue in the approval of a Chapter 313 agreement. The Chapter 313 program is administered by the Texas Comptroller of Public Accounts and applies to large-scale manufacturing, R&D, renewable energy, data center and other qualified industrial projects.

Notable HB 3390 Legislative Updates

  • Applicants are required to certify that the value limitation is a determining factor in the application process and the capital project’s construction.
  • The Texas Comptroller will strictly interpret Chapter 313 application criteria on the basis of high-paying jobs, net benefit to the State, and economic development goals of the program.
  • The Chapter 313 Program is reapproved for another 8 years, postponing sunset from 12/31/2014 to 12/31/2022.
  • Qualified property is prohibited from also being eligible to receive a sales & use tax refund.
  • A “Texas Priority Project,” or qualified investment of over $1B, is added to the list of approved property uses.
  • The requirement that 80% of all new jobs must be qualifying jobs is replaced by a total requirement for qualifying jobs.
  • An ISD can no longer override a Comptroller recommendation to reject a project application, as previously allowed by a two-thirds vote of the ISD board.
  • The Comptroller’s recommendation must now be based solely on the economic impact evaluation, instead of whether or not application meets the specified criteria.
  • Projects must generate positive net return through all forms of tax revenue by the 25th year.
  • The Comptroller may make a qualitative determination that other project considerations may result in net positive benefit to the state.
  • The value limitation applies for a period of 10 years, beginning January 1 of the first tax year after the application date.
  • Supplemental payments may not exceed $50,000 per year or $100 per student per year (Average Daily Attendance) and any additional consideration(s) under the agreement must be disclosed.
  • An application fee may include any estimated costs to the school district associated with the economic impact evaluation required by the Comptroller, as well as application processing costs.

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