Property Tax (Ad Valorem) Abatement
Property tax abatement is available from all three counties and all three cities located in the Katy Area. Property Tax (Ad Valorem) Abatement allows for multi-year exemption of non-educational property taxes by local public authorities on buildings, machinery and equipment. Projects are considered on a case by case basis and governed by local abatement guidelines, which include investment and job criteria and vary by authority. State statute allows for abatements of up to a maximum term of 10 years and authorities usually consider a percentage ratio of the total tax computation in their agreements. A Reinvestment Zone must be established by a City or County depending on the location of the property. Typical types of projects include manufacturing, headquarters, distribution, regional entertainment facilities, research and development, and plant modernization and expansion in the above industries. Public hearings must be held in order for a local public authority to approve the abatement. Cities, counties and taxing districts are approved public authorities. Communities and counties in the Katy area that have incentive guidelines include: the City of Katy, City of Fulshear, City of Houston, Fort Bend County, Harris County, and Waller County. Harris County also provides tax abatement for non-job related LEED Certified Buildings and for targeted job creation projects for low to moderate income persons.
Chapter 380 Agreements
Section 380.001 of the Local Government Code authorizes municipalities to offer a range of incentives and/or enter and agreement designed to promote state or local economic development. Specifically, it allows for the provision of loans and grants of city funds at minimal or no charge. Typically, these agreements involve a rebate or grant from revenues generated by the agreement. The City of Houston has developed and entered into Chapter 380 agreements for several development projects. These agreements have involved the provision of funds for public infrastructure rebated back to the developer based on the incremental value of property tax increase generated by the development or project.
The primary focus of an FTZ is to allow companies to reduce or eliminate duties and tariffs until such time as they are shipped to other markets. No duty is ever paid on re-exporting merchandise. If the merchandise is sold domestically, no duty is paid until it leaves the zone. Generally no duty is paid on waste or yield loss. Also, duty on scrap may be eliminated or reduced. If foreign merchandise is manufactured within an FTZ into a product with a lower duty rate, then the lower duty rate applies. Manufacturers must apply for sub-zone status to the U.S. Foreign Trade Zones Board.
Foreign Trade Zone (FTZ)
Texas Pollution Control Ad Valorem Exemption
This is an exemption from property taxation for pollution control 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.
Renewable Energy Device Exemption
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.
Historic Structures Tax Exemption
For historic structures, the City of Houston may grant a tax exemption to qualified property owners who improve designated historic properties. A property owner who has been denied a Certificate of Appropriateness is not eligible for a tax exemption. The exemption applies for five (5) years when granted by the City. If combined with other tax entities, the exception period may apply for up to ten (10) years.
Texas Economic Development Act (TEDA -- Chapter 313)
Katy has a unique position here, as the investment threshold criteria in the Katy Independent School District (KISD) is lower than communities in neighboring cities or areas. KISD's threshold investment is $30 million, versus $80,000,000 to $100,000,000 in neighboring areas. TEDA is designed to encourage the location and expansion following large scale projects: manufacturing; research and development; clean coal, advanced clean energy, renewable energy electric generation; electric power generation using integrated gasification combined cycle technology; nuclear electric power generation; or a computer center used primarily in connection to one of the above categories. TEDA requires companies to invest a specified amount of money over an 18 month period 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. A minimum of 25 new jobs must be created at certain wage levels. The local school district must elect to participate in order for the Company to recognize this benefit and the qualifying investment amount for the Katy Area begins at $30 million.
Freeport (Inventory) Property Tax Exemption
Freeport exemption is available 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. Some areas and districts in the Katy Area that provide Freeport exemption include Drainage Districts, Emergency Services Districts, Municipal Utility Districts, Improvement and Water Districts, the Port of Houston and the City of Houston.
This exemption applies to items in your inventory of last year (if applicable) that: (1) were acquired in or imported into Texas to be forwarded to another location (2) were temporarily stored at a location in which you do not have a direct or indirect ownership interest for assembling, storing, manufacturing, processing or fabricating by the person who acquired or imported the items and (3) that are transported to another location, inside or outside the state, within 175 days after the items were acquired or imported into the state. Some areas and districts in the Katy Area that provide Freeport exemption include Drainage Districts, Emergency Services Districts, Municipal Utility Districts, Improvement and Water Districts, the Port of Houston and the City of Houston.
Goods in Transit (Inventory) Property Tax Exemption
Texas Sales and Use Tax Exemption on 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 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.
Texas Sales and Use Tax Exemption on Labor
Texas businesses are exempt from paying state sales and use tax on labor for constructing new facilities.
Texas Sales and Use Tax Exemption on 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.
Texas R&D Credit
The bill reinstates franchise tax credits for companies conducting qualified research and development (R&D) activities within the state. The new law provides Texas companies the option of selecting either a sales tax exemption on property purchased by persons engaged in qualified research activities (QRAs) or the franchise tax credit, but not both. The effective date for the sales tax exemption is January 2014. The bill provides a sales tax exemption for property purchased, stored or used by a person engaged in qualified research. The property must be depreciable tangible personal property. The bill uses the definitions for “research” and “qualified research” that appear in federal tax law, except that these activities must occur within the state. A company conducting QRAs in Texas is eligible for a tax credit equal to 5% of the difference between a company’s qualified research expenses (QREs) during the tax year for which the credit is claimed and 50% of the average QREs for the three preceding tax years (base period). A company which has no QREs in one or more of the base period years may still claim the credit by selecting the reduced credit rate of 2.5% of credit year QREs.
This 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. Local areas, such as counties and cities, may nominate a company as an Enterprise Project to be eligible to participate in the Enterprise Zone Program. Legislation limits allocations to the state and local communities per biennium. Designated projects are eligible to apply for state sales and use tax refunds on qualified expenditures, which include any item that the company paid sale tax on that was used or consumed at the site. The level and amount of refund is related to the capital investment and jobs created at the qualified business site. Maximum refund amounts range from $2,500 to $7,500 per job created based on a maximum job allocation and capital investment amount. Projects may be physically located in or outside of an Enterprise Zone. Inside a zone, the company commits that at least 25% of their new employees will meet economically disadvantaged or enterprise zone residence requirements and county average weekly wage levels. Outside the zone, the company must commit that at least 35% of employees meet economically disadvantaged or enterprise zone residency requirements and meet county average weekly wage levels. Cities that may nominate enterprise zone projects in the Katy Area include the City of Houston, City of Katy and City of Fulshear. Counties that may nominate projects include Fort Bend, Harris and Waller Counties.
Texas Enterprise Zone Program
Texas Franchise Tax Exemptions and Deductions - Wind and Solar Energy
Texas 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.
Houston Metro and Colorado Valley Transit through several options, such as Metro Star provide commuter benefits for employers and employees. One can pick one incentive or employ a combination, up to a limit of $130 per employee per month. (1) Employer-paid transportation benefits: Employers can pay for each employee to commute via mass transit (bus, carpool or vanpool). Employees do not pay taxes on the value of this benefit and employers get a tax deduction for the expense. This offers significant savings over providing the equivalent dollar value to employees in the form of a salary increase. (2) Pre-tax transportation benefits: Employers can allow employees to elect to exchange taxable salary for a tax-free bus, carpool or vanpool benefit. Employers save money overall since the amount exchanged is not subject to payroll taxes. Employees save money because this reduces the amount of taxable income. (3) Shared-cost transportation benefits: Employers can share the cost of bus, carpool or vanpool costs with employees and everyone can receive valuable tax savings. Employers can provide a portion of the cost of taking transit or vanpooling as a tax-free benefit and allow the employee to exchange taxable salary for a tax-free bus, carpool or vanpool benefit. (4) Parking cash-out: Employers can offer employees the option to "cash out" of their existing parking space. In other words, the company can offer the employee what it would pay for the parking space in the form of taxable salary or tax-free transportation benefits.
Texas Data Center Incentives
House Bill 1223 created this incentive to temporarily reduce sales tax for new data centers that utilize more than 100,000 square feet of space, expend $200 million in investment and create at least 20 qualifying jobs. The law provides for a sales tax exemption of 10 to 15 years, depending on total investment, for electricity consumption and equipment purchases, such as servers, generators, storage devices, software and other systems necessary for data center operations. Click here for more information about the program.