June 16, 2023
Texas enacts incentives program to replace expired Ch. 313 School Value Limitation Program
On June 9, 2023, Texas Governor Greg Abbott signed HB 5, the "Texas Jobs, Energy, Technology, and Innovation Act," replacing the Texas Chapter 313 School Value Limitation Program, which expired on December 31, 2022. The new incentive program temporarily reduces school district maintenance and operations (M&O) property taxes for certain businesses that construct new facilities or expand existing facilities and meet job creation and investment requirements. The new law takes effect on January 1, 2024, and expires on December 31, 2033.
To qualify for reduced M&O property taxes, businesses in select industries must apply1to the Texas Comptroller of Public Accounts to have the taxable value of eligible property they will use in an eligible economic development project reduced for M&O property tax purposes for 10 years,2 provided they are constructing new facilities or expanding existing facilities. Additionally, they must agree to create 10-75 new jobs and invest $20 million — $200 million (thresholds vary based on county size).3 If an eligible project is located in multiple counties, the job and investment requirements for the county with the smallest population in which part of the project is located will apply. Applicants must also demonstrate that entering into an agreement to qualify for the reduced M&O property taxes is (1) a compelling factor in a competitive site selection determination and (2) the investment would not be made in Texas without the incentive.
Eligible projects include:
Eligible projects do not include projects to construct or expand new or existing nondispatchable electric generation facilities or electric energy storage facilities. Nondispatchable electric generation typically includes solar and wind power sources of electricity, among other sources.
Projects must also be located in an area designated as a reinvestment zone under Chapter 311 or 312 of the Texas Tax Code or as an enterprise zone under Chapter 2303.
Once the comptroller, governor and school district approve the application and an agreement is entered, the eligible property's taxable value, for school district M&O ad valorem tax purposes, will be limited to 50% of its market value during the incentive period outlined in the agreement. The limitation is 25% of the eligible property's market value if the property is located in a qualified Federal opportunity zone.
Jobs created at an eligible project must be new full-time jobs in Texas and meet certain wage requirements. Additionally, they must be (1) maintained in the usual course and scope of the applicant's business (this includes trainees under the Texans Work program) or (2) performed by an independent contractor and the independent contractor's employees. The new full-time jobs cannot be transferred from an applicant's existing facility or location in Texas or created to replace an existing job unless the vacancy caused by the transfer is filled. The jobs requirement does not apply to an eligible project that is a dispatchable electric generation facility.
If an applicant fails to comply with job or wage requirements, a penalty will be imposed. The penalty imposed cannot exceed the ad valorem tax benefit received by the applicant.
Applicants are subject to compliance reporting during the agreement.
Businesses not eligible to apply for these incentives include those listed as ineligible to receive a state contract or investment under specific provisions of Texas law (such as the prohibition on contracts with certain foreign-owned companies with critical infrastructure).
The new law describes the legislative intent and defines key terms, including "applicant," "construction completion date," "construction job," "construction period," "eligible property," "full-time job," "incentive period," and "investment."
The comptroller may adopt rules interpreting and administering the new incentive program.
Following the expiration of the Chapter 313 School Value Limitation Program at the end of 2022, the enactment of a new replacement incentive program is welcome news for businesses considering constructing a new facility or expanding an existing facility in Texas. Eligible businesses considering construction or expansion should review the new incentive program's requirements and keep in mind that the new incentive program does not take effect until January 1, 2024.
Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor
1 The application, which the comptroller will issue, must contain specified information, which, in addition to basic information (e.g., name, address), includes (1) a legal description of the property, each county and taxing unit where the project is proposed to be located, (2) a brief description of and proposed timeline for the proposed project, (3) the proposed incentives period, and (4) a summary of the projected economic benefits of the proposed project. Certain items, such as an economic benefit statement (the law describes what information must be included in such statement) and application fees, must be included with the application.
2 The incentive period may not begin earlier than January 1 of the first tax year following the construction completion date or later than January 1 of the first tax year following the 10th anniversary of the date the agreement was entered. The beginning date of an incentive period for an eligible project may be deferred. Further, an applicant may propose to modify the beginning and ending dates of an incentive period.
3 If the project is in a county with a population of at least 750,000, the business must create at least 75 required jobs and invest at least $200 million by the end of the first tax year of the incentive period prescribed by the agreement. The number of required jobs and the amount of investment is reduced to 50 and at least $100 million, respectively, if the project is in a county with a population of at least 250,000 but less than 750,000. The number of required jobs and the amount of investment is reduced to 35 and at least $50 million, respectively, if the project is in a county with a population of at least 100,000 but less than 250,000. The number of required jobs and the amount of investment is reduced to 10 and at least $20 million, respectively, if the project is in a county with a population of less than 100,000.