KEY CONCEPT: Tax Abatements
KEY QUESTION: What is the commissioners court’s responsibility with regard to tax abatements?
Texas Tax Code Chapter 312, Property Redevelopment and Tax Abatement Act
1. An abatement is defined as the full or partial exemption from ad valorem taxes of eligible properties in a reinvestment zone designated as such for economic development purposes. Cities, counties and other special districts are authorized to enter into tax abatement agreements. Generally speaking, school districts do not participate.
2. Tax abatements entered the scene in Texas in 1981 when state law allowed their issuance by local government entities. The 81st Legislature’s House Bill 773 extended the provisions of Chapter 312, Tax Code, the Property Redevelopment and Tax Abatement Act, until Sept.1, 2019. Without this legislation, the authority of counties and cities to approve new tax abatement agreements would have expired on Sept. 1, 2009.
3. Abatements can last for up to 10 years. Tax abatement agreements may be modified by the parties by the same procedure by which the original agreement was approved. The modification cannot extend the term beyond 10 years. The commencement of the abatement may be deferred.
4. Tax abatements may exempt real property and personal property for eligible properties, including inventory and supplies, according to the Texas Property Tax Code. The agreement may exempt all or part of the increase in taxable value. Senate Bill 1458, also passed by the 81st Legislature, clarified the authority of a county to grant a tax abatement on leased property and tangible personal property.
5. If the property in question is located inside the city limits, the city must initiate the tax abatement. When the property is inside the city’s extra-territorial jurisdiction (ETJ), either the county or city may initiate the process. Regarding property outside the city’s ETJ, the county must initiate the abatement procedure.
6. The lead taxing unit designates the required reinvestment zone. The lead unit must conduct a public hearing before designating a reinvestment zone and give notice to other taxing units; each unit then adopts a resolution declaring participation and terms.
7. In order to participate in an abatement, each taxing unit must adopt tax abatement guidelines and criteria. Once adopted, guidelines and criteria may be amended or repealed only by a vote of three-fourths of the commissioners court. The different taxing units may have different sets of guidelines. The guidelines and criteria are effective for two years.
8. A tax abatement agreement must:
a. Be approved at a regular meeting of the commissioners court by majority vote confirming that the agreement meets the guidelines and criteria.
b. List the property and proposed improvements.
c. Provide for access to ensure compliance.
d. Limit uses of property to those consistent with the agreement.
e. Provide for recapture if the owner fails to make improvements and meet targets in the agreement.