Written by: Patrick Price
As your leading corporate tax consultant, our team of experts stays up-to-date with the latest changes in economic development and property tax incentive programs that significantly impact businesses and their tax obligations. This article delves into the recently-enacted Texas Property Tax Incentive Program, also known as Chapter 403, and analyzes its implications for businesses looking to invest in the state.
REPLACING THE FORMER PROGRAM
For over 20 years, the previous economic incentive program, Chapter 313, played a crucial role in attracting industries and new capital investments to Texas. However, the program was allowed to sunset at the end of 2022, leaving many eagerly awaiting the details about its replacement. Governor Abbott recently signed HB-5, introducing the new Chapter 403 program, which will take effect on January 1, 2024. While the new program streamlines some aspects of the process, it also specifically excludes renewable energy projects and significantly increases the job requirements for a project to qualify.
KEY FEATURES OF THE NEW PROGRAM
Under the new program, agreements entered into by businesses will allow for an abatement of 100% of school district M&O (Maintenance and Operations) taxes during the construction phase. Following that, there will be a 50% abatement for the first 10 years, which can increase to 75% if the investment is made within a federal opportunity zone. It’s important to note that the minimum investment and job creation criteria vary based on county population.
SHIFT TO A “ONE-SIZE-FITS-ALL” APPROACH
One of the significant differences between the former and new incentive plans is the transition to a “one-size-fits-all” program. Previously, developers could negotiate directly with school districts, agreeing on an arbitrary property valuation and sharing the tax savings with the district. However, under the new program, the abatement is consistent, and school districts are now entitled to only a $30,000 application fee. While these changes may not have a significant impact on smaller developments, they will be keenly felt by larger-scale projects that states fiercely compete for.
IMPACT ON LARGE-SCALE PROJECTS
The new 50% abatement rate, although still beneficial, may be perceived as less generous compared to the incentives offered for many similar industry or high-profile investments over the last decade. For businesses involved in such large-scale projects, this change may require careful consideration to assess the overall financial implications of the new program.
CHALLENGES IN THE APPROVAL PROCESS
Previously, applicants only required approval from the Comptroller, which was typically assured, and the school district, which was motivated by its share of the property tax savings. However, under the new program, applicants will now need approval from the governor, and school districts may not be as incentivized to support the applications. This additional layer of approval and potential change in dynamics between applicants and school districts adds complexity to the process.
CITY & COUNTY PROGRAMS
City and county incentive programs remain unchanged and could now become of greater emphasis in the ultimate decision-making process. DMA provides the expertise necessary to facilitate and navigate these multifaceted processes and negotiations.
Chapter 403 marks a significant shift in Texas’s approach to economic incentives for businesses. While the new program offers benefits for businesses seeking to invest in Texas, it is crucial to carefully evaluate all potential sources of incentive and their impact, particularly for larger-scale projects, and navigate the approval process with a thorough understanding of the new requirements.
STAY CONNECTED WITH DMA’S PROPERTY TAX TEAM
By staying informed and seeking expert guidance, businesses like yours can make informed decisions that optimize tax obligations and position you for success in such a competitive environment. Our property tax experts thoroughly understand the implications of these changes and work together to navigate the ever-evolving landscape effectively, efficiently, and accurately.
Contact our property tax team today to get started on your property tax credits and incentives project.