On June 10, 2013, the Matagorda County Commissioners Court unanimously passed a 10-year, 100-percent per year property tax abatement agreement with Tenaris, a global manufacturer of steel pipe products used for drilling in the energy industry.
Also on June 10, the Matagorda County Commissioners Court voted 4-1 in favor of a Chapter 381 agreement that calls for the county to rebate the property taxes paid by Tenaris starting when the tax abatement agreement runs out in 10 years and extends for the next 15 years.
Under the terms of the 381 agreement, the county will rebate those taxes if Tenaris reaches agreed-upon terms of total investment and job creation. If Tenaris does not reach those standards, the county will be allowed to recover an agreed-upon portion of those tax revenues.
TenarisBayCity represents a $1.5-billion investment and is projected to create 600 direct manufacturing jobs with an average salary of $66,000, representing an annual projected payroll of approximately $40 million.
Tax abatements and Chapter 381 agreements are examples of economic development incentives available to Texas counties, along with other economic development tools described below.
Tax Increment Financing
Tax Increment Financing (TIF) is a tool that local governments can use to publicly finance needed structural improvements and enhance infrastructure within a reinvestment zone. These improvements are usually undertaken to promote existing businesses and/or to attract new business to the area.
The cost of improvements is repaid by the contribution of future tax revenues by each taxing unit that levies tax against the property. Each taxing unit may choose to dedicate all, a portion of, or none of the tax revenue that is attributable to the increase in property value resulting from the improvements.
Tax increment financing may be initiated by one of two ways: 1) by petition of the affected property owners, or 2) by the city or county’s governing body. Counties or municipalities interested in initiating tax increment financing should seek the advice of legal counsel.
Changes to the TIF Act during the 82nd Legislative Session include the addition of actual costs of remediation, preservation, or demolition of public or private buildings and school facilities costs to the definition of “project costs.” In addition, the TIF Act adds undeveloped land to the kinds of land that may be designated a reinvestment zone. Another significant change authorizes a Commissioners Court to enter into a TIF agreement with a municipality on behalf of other taxing units (excluding hospital districts) if the ad valorem tax rate of the other taxing unit is approved by the Commissioners Court or the Commissioners Court is required by statute to levy the ad valorem taxes of the other taxing unit. More information is available at: www.texasahead.org/tax_programs/increment_finance/. Reference – Chapter 311, Tax Code
Tax Abatement Act
A tax abatement is an agreement between a taxing unit and a property owner that exempts all or part of an increase in the value of real property and/or tangible personal property from taxation for a period not to exceed 10 years. Counties, cities, and special districts may enter into tax abatement agreements; school districts may not. Taxing units must adopt guidelines and criteria that govern abatements, prior to offering tax abatement agreements. These guidelines and criteria are effective for two years, after which they must be reviewed, revised and re-adopted by the governing body of the taxing unit.
Property that is to be abated must be in a designated reinvestment zone. A city or county may designate a reinvestment zone if its governing body determines that the area meets the statutory requirements. The governing body may designate a reinvestment zone only after holding a public hearing and finding that the improvements sought are feasible and would benefit the zone. At least seven days before the public hearing, notice of the hearing must be published in a newspaper of general circulation and delivered to any other local government units that have taxing jurisdiction in the area to be included in the zone. Reinvestment zones are effective for five years and may be renewed. Once a reinvestment zone is designated, the governing body of a taxing unit may enter into a tax abatement agreement if it finds that the terms of the agreement and the property subject to the agreement meet the applicable guidelines and criteria adopted by the governing body. Each taxing unit (except a school district) that has jurisdiction over a property may offer a separate tax abatement agreement. More information is available at www.texasahead.org/tax_programs/proptax_abatement/. Reference – Chapter 312, Tax Code
County Assistance Districts
Counties may hold an election in all or part of the county to create one or more county assistance districts and adopt a sales tax to fund the districts. Any county may adopt this sales tax, in all or part of the county, if the new combined local sales tax rate would not exceed 2 percent at any location. The tax may be adopted in increments of one-eighth of 1 percent, to a maximum of 2 percent. A district may undertake a variety of projects including roads or highways; provision of law enforcement and detention services; the maintenance or improvement of libraries, museums, parks or other recreational facilities; or other services that benefit the public welfare. More information is available at: www.texasahead.org/tax_programs/countyasst/. Reference – Chapter 387, Local Government Code
The Texas Enterprise Zone Program is an economic development tool that allows local communities to partner with the State of Texas to promote job creation and capital investment in economically distressed areas of the state. Local communities may provide incentives such as tax abatements, fee waivers, and reduced regulations to businesses within an enterprise zone. They also may nominate businesses as enterprise projects. Enterprise projects are selected by the state and may be eligible for sales tax refunds and other benefits. The Comptroller’s office administers enterprise zone refunds under Section 151.429 of the Tax Code. For additional information, contact the Economic Development and Tourism Division of the Governor’s Office at 512-936-0100. More information is available at: www.texaswideopenforbusiness.com/incentives-financing/tax/tez.php and www.texasahead.org/tax_programs/enterprise/. Reference – Chapter 2303, Government Code
Chapter 380/381 Agreements
Chapters 380 (cities) and 381 (counties) of the Local Government Code grant cities and counties broad discretion to make loans and grants of public funds or the provision of public services, at little or no cost, to promote all types of business development including industrial, commercial and retail projects. Each agreement can be uniquely tailored to address the specific needs of both the local government entity and the business prospect. Cities should review their charters for provisions which might restrict their ability to implement an incentive agreement. Both cities and counties should consider adopting policies or guidelines to provide a framework for negotiating development agreements. Cities and counties throughout Texas have utilized Chapter 380/381 agreements to attract businesses and jobs to their communities. More information is available at: www.texasahead.org/tax_programs/ch380-381/. References – Chapters 380-381, Local Government Code
Municipal & County Hotel
Home rule cities, general law cities and some 60-plus counties are authorized to impose a local hotel occupancy tax within their jurisdictions. For most cities the tax rate may not exceed 7 percent of the price paid for the use of a hotel room. The tax rate for eligible counties varies. Cities with populations under 35,000 also may impose the hotel occupancy tax in the city’s extraterritorial jurisdiction (ETJ). If a city adopts the hotel occupancy tax within its ETJ, the combined rate of state, county, and municipal hotel occupancy taxes may not exceed 15 percent.
If the Venue Tax is also imposed, the maximum combined rate a municipality or county may impose is 17 percent, as stated by the 83rd Texas Legislature in House Bill 1908: “A municipality or county may not propose a hotel occupancy tax rate that would cause the combined hotel occupancy tax rate imposed from all sources at any location in the municipality or county, as applicable, to exceed 17 percent of the price paid for a room in a hotel.”
Expenditures of hotel occupancy tax funds must comply with a “two-part test.” First, each expense must promote the hotel and convention industry (i.e. “put heads in hotel beds”). Second, each disbursement also must conform to at least one of seven statutorily-designated categories. The categories are:
- convention and visitor centers;
- convention registration;
- advertising the city;
- promotion of the arts; historic
- restoration and preservation;
- sporting events, if the city is located in a county with a population of 1,000,000 or less; and
- tourist transportation systems.
More information including eligibility requirements is available at: www.window.state.tx.us/taxinfo/hotel/index.html and https://www.oag.state.tx.us/AG_Publications/pdfs/econdevhb2008.pdf. References – Chapters 351-352, Tax Code.
Public Improvement Districts (PIDs)
PIDs offer cities and counties a means for improving their infrastructure to promote economic growth in an area. The Public Improvement District Assessment Act allows cities and counties to levy and collect special assessments on properties that are within the city or its extraterritorial jurisdiction. Additional financing options are available to certain large counties. PIDs may be formed to create water, wastewater, health and sanitation, or drainage improvements; street and sidewalk improvements; mass transit improvements; parking improvements; library improvements; park, recreation and cultural improvements; landscaping and other aesthetic improvements; art installation; creation of pedestrian malls or similar improvements; supplemental safety services for the improvement of the district, including public safety and security services; or supplemental business-related services for the improvement of the district, including advertising and business recruitment and development. More information is available at: www.texasahead.org/tax_programs/pubimprovement/. Reference – Chapter 372, Local Government Code
Sales Tax Option for Counties
Texas cities, counties and hospital districts have the option to reduce property taxes through an additional sales and use tax. Although this tax is sometimes called “the sales tax to reduce the property tax rate,” the statutes refer to it as “the additional municipal sales and use tax” for cities, the “county sales and use tax” for counties, and the “hospital district sales and use tax” for hospital districts. A county is eligible to adopt the tax if the new combined local sales tax rate would not exceed 2 percent at any location within the county, and no part of the county is located within the boundaries of a rapid transit or regional transportation authority. An authority is not considered part of a county if fewer than 250 people are residents of both the county and the authority. Voters may adopt the sales and use tax at a rate of one-half of 1 percent. If a county has no incorporated cities, the county tax rate must be 1 percent. When holding an election to adopt or repeal the sales and use tax, a county must print the ballot to permit voting for or against one of the following propositions, as appropriate:
In a county with territory within the limits of a city, the ballot proposition to adopt the tax must state: “Adoption of a one-half percent county sales and use tax within the county to be used to reduce the county property tax rate.”
In a county that does not have territory within the limits of a city, the ballot proposition to adopt the tax must state: “Adoption of a one percent county sales and use tax within the county to be used to reduce the county property tax rate.”
In an election to repeal the tax, the ballot proposition must state: “Abolition of the county sales and use tax within the county.” References – Sec. 323.101, 323.103, 323.404, Tax Code. Chapters 451-452, Transportation Code.
Crime Control and Prevention District Tax** (one-eighth, one-fourth, three-eighths or one-half of 1 percent)
This sales tax may be imposed by a city located in a county with a population of more than 5,000 or by a county with a population of more than 130,000. The governing body in a municipality or Commissioners Court may specify the number of years (5, 10, 15 or 20) the district would be continued. Revenues from the sales tax may be used to finance a wide variety of crime control and prevention programs. If the county already has a combined local sales tax rate of 2 percent, the county may not levy this tax. References – Chapter 363, Local Government Code, and Sec. 323.105, Tax Code
Venue Tax “Stadium Bill” (one-eighth, one-fourth, three-eighths or one-half of 1 percent)
This sales tax is one of several revenue options available to a city or county to fund sports and community “venue” projects. Multiple cities and counties in any combination may join to form a venue district under Chapter 335, Local Government Code, as well. Some examples of a “venue” are a stadium, convention center, park or economic development-type facility. If the county already has a combined local sales tax rate of 2 percent, the county may not levy this tax. References – Chapters 334 and 335, Local Government Code
Emergency Services District (ESD)** (increments of one-eighth of 1 percent, to a maximum of 2 percent)
Counties may hold an election in all or part of the county to create one or more emergency services districts and adopt a sales tax to fund the districts. Funds may be used to hire emergency personnel, contract with other entities to provide emergency services, and/or purchase equipment and facilities. References – Chapters 775 and 776, Health and Safety Code
Local Sales Tax on
State law provides that telecommunications services are subject to the state sales tax, but are exempt from all local sales taxes. The governing body of a city, county, transit authority, or other special purpose district may vote to impose sales tax on these services. The local sales tax is limited to telecommunications services occurring between locations within Texas. The local sales tax is collected based on where the call originates. If the origin of the call cannot be determined, then the local sales tax collected is based on where the call is billed. Local sales tax on mobile telecommunications services is determined differently.
A call from Austin to Dallas is subject to local tax, for instance, while a call from Austin to Chicago is not. For mobile telecommunications services, the local sales tax rate is determined by the customer’s place of primary use, generally the residential or primary business street address. For example, a salesman based in Austin will pay Austin city and transit sales tax on a cellular call from San Antonio to Corpus Christi, since Austin is the place of primary use.
For telecommunication services billed call-by-call or per transmission, the local sales tax rate is determined by where the call or transmission originates. If a visitor in Houston calls someone in Beaumont and charges the call to their home phone in El Paso, Houston local tax is due. For telephone calls not billed call-by-call, the local sales tax rate is determined by the customer’s place of primary use. For example, a subscriber to voice over Internet protocol (VOIP) pays $39.95 per month for unlimited local and long-distance calls. Charges for calls are not itemized. If the subscriber’s home is in Austin, the $39.95 charge is subject to Austin city and transit tax. References – Section 151.0101, Section 151.0103, Tax Code. Also See Publication #96-339, Texas Comptroller, http://www.window.state.tx.us/taxinfo/taxpubs/tx96_339.html
** This tax is actually imposed by a board, district or authority created by and for the benefit of a city or county.
Information provided by the Texas Comptroller of Public Accounts.