Governor Vetoes Major Changes to Texas Enterprise Zone Program

Governor Rick Perry has vetoed a bill that would have significantly changed the state’s Enterprise Zone Program (“Program”), which provides sales tax refunds to companies that create and retain jobs and make capital investments in Texas. In announcing his veto of House Bill 1982 (“HB 1982”) on Friday, June 14, 2013, Governor Perry recommended the Legislature conduct an interim study of the Program, which has been in place since 1993.

The Program is nationally recognized as one of the state’s most important tools for the promotion of job creation, job retention, and capital investments in economically distressed areas of the state. Under the Program, designated projects are eligible to apply for state sales and use tax refunds on taxable items. The level and amount of refund depends on the amount of capital investment made and the number of jobs created or retained at a qualified business site. Bill sponsors Representative Jim Murphy, R-Houston, and Senator Juan Hinojosa, D-McAllen, had sought to redirect more Program funds away from job retention and into job creation and to disqualify certain capital asset investments.

In his veto message, Governor Perry said, “I applaud the intent of House Bill 1982 to improve the enterprise zone program by requiring projects that get the biggest tax refunds to create more jobs rather than focusing on job retention. However, HB 1982 also contains ambiguous language which could hurt, rather than help, the program. Therefore, I veto HB 1982 and will recommend that the lieutenant governor and speaker of the House conduct an interim study to review this issue and ways to improve the program.”

Governor Perry’s statement regarding “ambiguous language” appears to have been directed at a provision of the bill which would have prevented companies from claiming certain purchases of capital assets for purposes of attaining the capital investment levels required by the Program. The bill stated that “a state-mandated or federally mandated capital investment, including an investment in pollution abatement equipment, does not qualify as a committed capital investment in an enterprise project under this chapter.”

Under the bill, only new job projects would have qualified for “double jumbo” and “triple jumbo” designations, which entitle a company to tax refunds of up to $2.5 million and $3.75 million respectively. The bill further provided that a company could be designated for only one double jumbo and one triple jumbo designation, regardless of the number of jobs created. Retained job projects would have still qualified for single designations, which have tax refunds capped at $1.25 million. Currently, retained job projects qualify for all levels of designation under the Program.