What is The Texas Economic Development Act?
The Texas Economic Development Act is found in Chapter 313 of the Tax Code. It allows a school district to offer a temporary limitation for school property tax purposes on the property value of new investment in the state (it follows Chapter 312, the chapter which allows cities and counties to offer property tax abatements). Under Chapter 313, a local school district may defer for 8 years the time before a new investment project goes onto the tax rolls at full value. The limitation on the taxable value of a project does not take effect until the third year of the project. A taxpayer may also make a separate application to the school district for a credit for taxes paid during the first two years on the value of property in excess of the limitation amount.
Why Was the Act Passed?
Chapter 313, the Texas Economic Development Act, was passed in 2001 as HB 1200. The original bill had five authors and 100 co-authors in the House. The bill was offered in response to Texas losing a number of major new industrial projects to other states—events largely attributable to the state’s high property tax burden, and in particular, local school property taxes. School districts had at one time been able to offer tax abatements similar to those of cities and counties, but this authority was repealed in the mid 1990s. With the loss of school tax abatement authority, Texas fell from the nation’s top industrial location in 1996, as ranked by Site Selection Magazine, to 37th in 2000. Over those years, Texas lost 12
major facilities to other states—4 to Oklahoma alone.
How Does the Program Work?
The figure below illustrates how the program works. A taxpayer considering to build a new facility, or expand an existing facility, applies for a tax limitation to the school district in which the project will be located. In the example below, a taxpayer proposes to make a new investment of $500 million for a facility that will take two years to construct. The school district in this case agrees to offer a value limitation of $100 million for maintenance and operations taxes.
The first two years after the application is approved are the “qualifying period,” which in this case corresponds with the construction of the project. During these two years, the taxpayer pays property tax on the full value of the property, which the chief appraiser values based on the “construction in place; ” however, the school district may subsequently grant a credit to the taxpayer for the amount of taxes paid on value in excess of the limitation during the qualifying period. This credit typically begins in the fourth year of the project and is claimable in installments over 7 years. In the third year after the application is approved, the taxable value of the property associated with the project is capped at $100 million, and it remains capped for 8 years. The chief appraiser will still independently value the property based on its full value. The taxable value and the amount of the exempt value above the limitation are reported by the school district to the Comptroller as a part of their “self-report” of property value. In year 11, the limitation expires and the property goes onto the tax rolls at full value. Thereafter it remains fully valued on the tax rolls and is not eligible for a continuation of the limitation or for a new limitation.
Texas Taxpayers and Research Association – Economic Development Act
- From 2002 to 2014, Texas schools committed to tax breaks that will hoover $5.5 billion from the state’s budget
- There are no time limit or monetary cap on the amount of Tax exemptions that can be given out
- As of 2013, each job credited to a 313 project cost the state $350,000
Code – Tax Code
Chapter – 313 Economic Development Act