The Texas Legislature is considering three bills that would significantly affect the ability of a business to qualify for sales and use tax refunds under the state’s Enterprise Zone Program.
The first of the bills (House Bill 3694 by Representative Joe Deshotel, D-Beaumont) will be heard at 10:30 a.m. Wednesday, April 4, 2007 in the House Economic Development Committee that Deshotel chairs. The bill (HB 3694) would expand the program, but it also would eliminate criteria that enable existing businesses to qualify for the program by investing in improvements to retain existing jobs.
About half of the projects approved for the program since 2004 were job retention projects, and they have resulted in the retention of an estimated 26,000 jobs in the state. Under Deshotel’s bill (HB 3694), a business would qualify for the program only if a project would create new jobs or if the business could show that existing jobs would otherwise be permanently lost.
Senator Kim Brimer, R-Arlington, is sponsoring bills (Senate Bill 1261 and Senate Bill 1262), both pending before the Senate Business and Commerce Committee’s Subcommittee on Emerging Technology and Economic Development.
Both Deshotel and Brimer would provide for sales tax refunds on all purchases of taxable items used at a qualified business site for the project. Current law limits the refund to sales tax paid on certain types of taxable purchases. Deshotel also would expand the number of projects that could be designated in the next biennium from the current maximum of 85 to 120 projects. But Deshotel would prohibit a county from nominating a project located in an incorporated area, while Brimer would expressly permit the state’s large urban counties (which have limited unincorporated areas) to nominate projects located in municipalities and municipality extraterritorial areas. Current law is unclear as to the right of a county to nominate a project located in an incorporated area.
Below is a summary of the three bills.
House Bill 3694
HB 3694 deletes three ways that existing businesses currently qualify for enterprise zone sales tax refunds. They are:
- Projects involving a 10 percent increase in the production capacity of the business,
- Projects involving a 10 percent decrease in overall cost per unit produced, or
- Projects in which the business facility is both adding a new business line or product and deleting or decreasing an existing business line or product, and the designation will prevent the facility's net production capacity from decreasing.
The bill would reduce the maximum benefit permitted for a job retention project by $1.25 million. The current maximum benefit is $3.75 million in sales and use tax refunds when the project has a capital investment of $250 million or more. Deshotel would lower it to $2.5 million in sales and use tax refunds for a capital investment of $250 million or more. The maximum benefit of $3.75 million in sales and use tax refunds would be limited to projects creating at least 500 new jobs and having a capital investment of $250 million or more.
The bill would change the criteria related to destroyed or impaired business facilities to require that the business facility be substantially impaired because of fire, flood, tornado, hurricane, or any other natural disaster and that at least 60 percent of the capital investment be spent to repair the damage. The bill would prohibit a county from nominating a project located in an incorporated area. It would increase the number of projects that can be designated in the next biennium from 85 to 120, and it would permit sales tax refunds on all purchases of taxable items.
Senate Bill 1261
SB 1261 permits the state’s five major metropolitan area counties (those with a population of 750,000 or more) to nominate projects located in incorporated areas of the county. Urban counties currently are permitted to nominate enterprise projects, but that ability is effectively limited by the inherent lack of unincorporated areas within their boundaries. This bill would permit them to nominate a project located in a municipality in the county or in the municipality’s extraterritorial areas. The bill would not impede the ability of the municipality also to nominate projects.
Senate Bill 1262
Similar to SB 1261, SB 1262 gives urban counties the ability to nominate projects in incorporated areas. It also permits sales and use tax refunds on purchases of all taxable items for use at a qualified business site. It would permit an employer who provides company-paid vacation, holidays, and sick time to count that leave time as “hours of employment” for purposes of determining whether a job provides the required 1,820 hours a year of employment. It would streamline the job certification process and statutorily define a “certified job.” It would permit a certified business to seek refunds for investments made after the company’s designation but prior to operation startup. It would gross up projects to cover the three percent administrative fee associated with the program. Currently, the fee comes out of the project benefit so that the project ends up receiving 97 percent of the benefit.