Tax Incentives

Reinvestment Zones  

As a local economic development tool used by municipalities and counties throughout the state of Texas, reinvestment zones have been used to stimulate local economies by attracting new companies and encouraging the growth of existing businesses. These zones can be created for the purpose of granting local businesses ad valorem property tax abatements on a portion of the value of real and/or tangible personal property located in the zone, for a period of up to 10 years.  Special taxation entities having jurisdiction over a reinvestment zone may participate in executed abatement agreements; however, the special taxing districts may not designate reinvestment zones or initiate tax abatement agreements. Reinvestment zones are designated by local ordinance or resolution. Incorporated cities, counties and special districts are allowed to enter into tax abatement agreements. However, school districts no longer possess this ability.  The Comptroller of Public Accounts has responsibility for the state's central registry of reinvestment zones.

Fort Bend County projects that may qualify for reinvestment zone and property tax abatement include manufacturing, wholesale distribution, major office operations, and recreational uses that serve a regional population.  Authorized investments/property includes new plant, expansion, and modernization.  Eligible investments/property include buildings, structures, fixed machinery, equipment, site improvements, industrial buildings, warehouses, hotels with 150 or more rooms, office buildings, medical and scientific facilities serving a regional population, and tangible personal property.  Ineligible investments/property include: Land, supplies, inventory, housing, deferred maintenance, certain rental property, facilities to primarily provide goods and services to residents and existing businesses, such as restaurants and retail stores and property with a productive life less than 10 years.  The abatement period is negotiable up to 70%, up to a period of 10 years.  Minimum investment is $1,000,000 in new additional assessed value.  Job creation requirement is 25 new jobs.  Additionally, the Company should consider becoming a Trustee of the Greater Fort Bend Economic Development Council at the Trustee Level ($6,000 per year) for the term of the abatement.  An economic impact analysis is performed to determine eligibility and Katy Area EDC can assist the Company in preparing the application and economic impact for submission to the Greater Fort Bend Economic Development Council.

Construction of a new eligible facility resulting in creation of jobs for residents of “HUD-Designated Low-Income Target Areas” within the County, as determined on application date, may enable CSD to recommend that Commissioners Court approve an additional tax abatement, per the following:  a) 10 jobs (up to 24) 2.0% increase in tax abatement; b) 25 jobs (up to 49) 5.0% increase in tax abatement; c) 50 jobs (up to 99) 10% increase in tax abatement; d) 100 jobs (or more) 20% increase in tax abatement.  A qualifying project must nevertheless meet the three basic requirements to for an economic development tax abatement: (1) creation of at least $1 million in new tax roll value, (2) creation of at least 25 new permanent full-time jobs, and (3) competitive siting. Compliance shall be monitored annually based on W-2s and other pertinent employee-specific data to be required/requested from employer as needed. A specific “Target Area Employment Incentive” provision must be contained in the Agreement approved by Commissioners Court and cannot be added at a later date.

Construction of a new eligible facility in a “HUD-Designated Low-Income Target Area” within the County, as determined on the application date, may enable CSD to recommend that Commissioners Court approve additional tax abatement up to 10%. A qualifying project must nevertheless meet the three basic requirements to for an economic development tax abatement: (1) creation of at least $1 million in new tax roll value, (2) creation of at least 25 new permanent full-time jobs, and (3) competitive siting.  A specific “Target Area Project Site Incentive” provision must be contained in the Agreement approved by Commissioners Court and cannot be added at a later date.

Harris County projects that may qualify for reinvestment zone and property tax abatement include the following types of facilities’:  manufacturing, research, regional distribution, regional service, regional entertainment, research and development or other basic industry. Abatement may be granted for new facilities, expansion of existing facilities, or the improvement to existing facilities having the effect of improving current economic conditions.  Eligible property may be extended to the value of buildings, structures, fixed machinery and equipment, site improvements plus the office space and related fixed improvements necessary to the operation and administration of the facility.   Ineligible investments include:  land; inventories; supplies; tools; furnishings, and other forms of movable personal property; vehicles; vessels; aircraft; housing; hotels accommodations; retail facilities; deferred maintenance investments; property to be rented or leased except as provided in the tax abatement policy; property which has a productive life of less than 15 years; property owned or used by the State of Texas or its political subdivisions or by any organization owned, operated or directed by a political subdivision of the State of Texas or any property exempted by local, state or federal law.   Projects may be eligible for abatement 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   Such cap shall not exceed the increased value requirement as set out in the abatement agreement, and will adjust annually.  The abatement amount each year is determined by the adjusted cap being multiplied by 50% in each year up to a total period of 10 years and five years for research and development projects.   Minimum investment is $1,000,000 in new increased value upon completion of the contractually defined “construction period,”  Criteria for jobs:  the project must be shown to directly create or prevent the loss of permanent full-time employment for at least 25 people and five people for research development projects  within the reinvestment zone upon completion of the contractually-defined ”employment period”.  The project must also be “competitively sited and must be shown not to solely or primarily have the effect of transferring employment from one part of Harris County to another.  Additionally, company history with compliance with state and federal environmental laws and worker safety laws are taken into consideration.   Katy Area EDC can assist the Company in preparing the application for submission to the Harris County Community Services Department.

If the owner of a new commercial facility has registered with the U.S. Green Building Council (“USGBC”) seeking LEED Certification, then the County Community Services Department (“CSD”) may recommend approval of partial tax abatement for the incremental investment associated with obtaining such certification. The Agreement shall be effective up to 10 years, at a percentage based upon the level of certification actually obtained after completion of construction: • LEED Certification Level and “Imputed LEED-Related Value Increment:”   1. Basic “Certified” Level 1.0%; 2. Silver Level 2.5%; 3. Gold Level 5.0%; 4. Platinum Level 10%.  The minimum value increase requirement derived from the “Imputed LEED-Related Value Increment” to meet the eligibility test is $100,000. This type of tax abatement may be sought by an applicant of the County’s standard economic development tax abatement, or as standalone tax abatement. When an applicant seeks only a LEED Certification Tax Abatement, no job creation target or competitive siting will be required in order to qualify. The investment requirement will be at least $1 million for a commercial structure with Platinum LEED Certification, and at least $10 million for a commercial structure with the Basic Certification (assumes percentages from preceding table and minimum value increase of $100,000). Applicant must be registered with USGBC seeking LEED Certification, prior to submitting its application to the County.  The application for a LEED Certification Tax Abatement must be submitted to the County prior to commencing construction of the applicable new development. A non-refundable application fee of $1,000 specifically for “LEED Certification Tax Abatement,” made payable to Harris County, must be provided to the County with an application.  The Agreement shall become effective in the year the application is approved by Commissioners Court up to 10 years. However, the tax abatement benefit (i.e., partial exemption of value from ad valorem taxes) shall not commence until construction of the project is completed and LEED Certification is obtained by the applicant. The value of the tax abatement shall be calculated on the appraised value after LEED Certification is obtained.   The value of the tax abatement may be increased by up to $1,000 in the final year of the Agreement, at the County’s discretion. Katy Area EDC can assist the Company in preparing the application for submission to the Harris County Community Services Department.

Waller County projects that may qualify for reinvestment zone and property tax abatement include manufacturing, wholesale distribution, office operations, and recreational uses that serve a regional population.  Authorized investments include new plant, expansion, and modernization.  Eligible investments include buildings, structures, fixed machinery, equipment, site improvements, speculative industrial buildings, urgent care centers, warehouses and recreation and entertainment facilities serving a regional population.  Ineligible investments/property include:  land; inventories; supplies; tools; furnishings, and other forms of movable personal property; vehicles; vessels; aircraft; housing; hotels accommodations; retail facilities; deferred maintenance investments; property to be rented or leased except as provided in the tax abatement policy; improvements for the generation or transmission of electrical energy not wholly consumed by a new facility or expansion; any improvements, including those to produce, store or distribute natural gas, fluids or gases, which are not integral to the operation of the facility; property which has a productive life of less than 10 years; property owned or used by the State of Texas or its political subdivisions or by any organization owned, operated or directed by a political subdivision of the State of Texas.  The abatement period is negotiable up to a period of 8 years.  Minimum investment is $1,000,000 in new, additional assessed value for new projects and $500,000 for existing Waller County expanding businesses.  Job creation requirement is five new jobs.  An economic impact analysis is performed to determine eligibility.   An economic impact analysis is performed to determine eligibility and Katy Area EDC can assist the Company in preparing the application and economic impact analysis for submission to the Waller County Commissioner’s Court.

Chapter 381 Economic Development Policy Regarding Essential Infrastructure, Waller County, Texas

An incentive may be granted for an amount equal to a portion of ad valorem taxes levied and collected by Waller County on assessed increased valuation of improvements in years following the base year, or for an agreed amount per year.  Any incentive granted may be in the form of a rebate or discount.  Any incentive may be granted according to the approved agreement between the applicant and Waller County.  The Waller County Commissioners’ Court, in its sole discretion, shall determine the amount of any incentive.  Any business proposing to construct essential infrastructure in Waller County may request a financial incentive by filing a written request with the County Judge of Waller County.  The written request shall consist of a completed application form accompanied by a copy of a cost estimate for the infrastructure.  Waller County, not later than 60 days after receipt of the application for financial incentive, shall by Commissioners’ Court order either approve or deny the application by a majority vote at a regularly scheduled meeting

 Pollution Control Ad Valorem Exemption

 A 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.  

Application Form

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.

Application Form

 Agricultural Ad Valorem Exemptions

Agricultural appraisal lowers the value of land based on the land’s capacity to produce crops, livestock, qualified wildlife, or timber, instead of its value on the real estate market. This lower value reduces property taxes on the land. Taxpayers may qualify for agricultural appraisal under two different laws. The newer law is called “open-space valuation” or “1-d-1 appraisal” (after Article 8, Section 1-d-1 of the Texas Constitution). Nearly all land that receives agricultural appraisal is under this law. Details on the older law — known as “1-d” or “agricultural use” — are available from your appraisal district.  For “1-d-1 appraisal,” the land must meet the following: The land must be devoted principally to agricultural use. Agricultural use includes production of crops, livestock, poultry, fish, or cover crops. It also can include leaving the land idle for a government program or for normal crop or livestock rotation. Land used for raising certain exotic animals (including exotic birds) to produce human food or other items of commercial value and cutting wood for use in fences or structures on adjacent agricultural land also qualifies. Wildlife management is also an agricultural use. Such land was previously qualified open-space land and is actively used for wildlife management. Wildlife management land must be used in at least three of seven specific ways to propagate a breeding population of wild animals for human use. Timberland must be used with the intent to produce income and be devoted principally to the production of timber.  Both agricultural land and timberland must be devoted to production at a level of intensity that is common in the local area. The land must have been devoted to agricultural and/or timber production for at least five of the past seven years. However, land within the city limits must have been devoted continuously for the preceding five years, unless the land did not receive substantially equal city services as other properties in the city.

Residential Homestead Exemptions   

The Property Tax Code authorizes the governing body of each political subdivision in the State of Texas to exempt up to twenty percent (20%) of the appraised value of residential homesteads from ad valorem taxation.  Where ad valorem taxes have previously been pledged for the payment of debt, the governing body of a political subdivision may continue to levy and collect taxes against the exempt value of the homesteads until the debt is discharged, if the cessation of the levy would impair the obligations of the contract by which the debt was created.  The adoption of a homestead exemption may be considered each year, but must be adopted by April 30.

Historic Structures Tax Exemption

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 exemption period may apply for up to ten (10) years.  Contact: Department of Planning & Development, Randy Pace 713.837.7796;

In 2001, the 77th Texas Legislature enacted House Bill 1200 creating Tax Code Chapter 313, Texas Economic Development Act (TEDA), to encourage the following large scale projects:   manufacturing; research and development; clean coal as defined by Section 5.001, Water Code; advanced clean energy as defined by Section 382.003, Health and Safety Code; 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 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. For more information visit:  http://www.window.state.tx.us/taxinfo/proptax/hb1200/index.html .

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. The following areas/districts in the Katy Area provide freeport exemption: Brookshire Katy Drainage District, Emergency Services Districts, Municipal Utility Districts, Improvement and Water Districts and the City of Houston.

Application Form

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. The exemption does not apply to oil, natural gas, petroleum products, aircraft, dealer’s motor vehicle inventory, dealer’s vessel and outboard motor inventory, dealer’s heavy equipment inventory or retail manufactured housing inventory.  Some Municipal Utility Districts, Drainage Districts and other districts provide this exemption. Contact the EDC for a list of entities that provide this exemption.

Companies must file the completed form between January 1 and no later than April 30 of the year. Attach any additional documents requested. Companies must apply for the exemption in each year that the Company claims entitlement.

 Application Form

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:

1. Paid property taxes to a school district on property that is located in a reinvestment zone established under Chapter 312.
2. Is exempt in whole or in part from property tax imposed by a city or county under a tax abatement agreement established under Chapter 312.
3. 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, 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.

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. 

More Information 

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.

Program Objective

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.  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.  The state accepts applications quarterly with deadlines on the first working day of March, June, September and December.  Designated 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.

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Communities may nominate projects, for a designation period up to five years, non-inclusive of a 90-day window prior to the application deadline. Employment and capital investment commitments must be incurred and met within this 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.  Under limited statutory provisions, an enterprise project designation may be granted for job retention.  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 County and the Waller County.  Recently, Katy Area EDC  prepared the Rooms to Go Enterprise Zone Application which was approved by the State of Texas for potential rebates of over $1,000,000.