On the heels of the 2022 sunset of popular but controversial school property tax incentives under Tex. Gov’t Code Chapter 313, the Texas Legislature recently adopted a new set of tax incentives entitled the Texas Jobs, Energy, Technology & Innovation Act (JETI). The new program reduces the amount of tax previously abated under Chapter 313, limits eligible projects, and introduces additional transparency and oversight into the abatement process. The new incentives are found in Subchapter T of Tex. Gov’t Code Chapter 403 and will become effective January 1, 2024.
Eligible Projects
Under Chapter 403, tax abatements are available for the following:
- Construction or expansion of a new or existing facility that is:
- a manufacturing facility;
- related to the provision of utility services;
- related to development of natural resources;
- engaged in research, development, or manufacture of high-tech equipment or technology; or
- Construction or expansion of critical infrastructure.
Ineligible Projects
- Non-dispatchable electric generation facilities, those facilities whose output cannot be controlled by forces under human control;
- Renewable energy facilities;
- Electric energy storage facilities, including battery electric storage facilities.
Eligible Property
- New building or expansion of existing building, including a permanent, nonremovable component of a building, constructed in a qualifying area after the agreement is executed; or
- Tangible personal property (other than inventory) first located in a qualifying area after the agreement is executed.
A “qualifying area” is an area designated as a Reinvestment Zone (Tex. Tax Code Chapter 311 or 312) or an Enterprise Zone (Tex. Gov’t Code Chapter 2303).
Job and Investment Requirements
The job and investment requirements are tiered according to county population as follows:
|
County Population |
Minimum Required Investment |
New Full-Time Jobs |
|
750,000 or more |
$200 million |
75 |
|
250,000 to 749,999 |
$100 million |
50 |
|
100,000 to 249,999 |
$50 million |
35 |
|
99,999 or fewer |
$20 million |
10 |
If a project is located in two counties, the requirements for the smallest population tier apply.
Each job must be a new full-time job (1,600 hours per year), maintained in the usual course and scope of the business or performed by an independent contractor. In-state job transfers are allowed, provided the vacancy is filled. (Construction jobs do not count towards the job requirement.)
The average annual wage must exceed 110% of the average annual wage for all jobs in the applicable industry sector during the prior four quarters, and the applicant must offer or contribute to health insurance for each W-2 employee in a full-time job.
Electricity generation facilities are not required to meet the job requirement.
10-Year Incentive Period
The incentive period runs for 10 consecutive tax years, and the incentive period may not begin earlier than January 1 of the first tax year after completion of construction, or later than January 1 of the first tax year after the 10th anniversary of signing the agreement.
Taxable Value of Construction Work in Process (CWIP)
100% of CWIP is abated during the period of construction [maintenance and operations (M&O) taxes only].
Taxable Value of Eligible Property for Incentive Period (M&O Taxes Only)
- 50% of market value for each year;
- Additional 25% of market value (75% total) for each year, if located in a federal qualified Opportunity Zone
There is no taxable value limitation for purposes of interest and sinking (I&S) tax.
Ineligible Companies
Companies ineligible to receive a state contract or investment under Tex. Gov’t Code Chapters 808, 809, 2270, 2271, or 2274 are ineligible to receive the aforementioned property tax abatements. These include companies that boycott Israel, boycott fossil fuel energy companies, discriminate against firearms manufacturers, or that are majority-owned by citizens of designated foreign countries.
Application Process
The application process for Chapter 403 incentives is somewhat different from the Chapter 313 process. Rather than applying directly to a school district, applicants must apply to the Texas Comptroller of Public Accounts for recommendation. The application will be accompanied by a fee to the Comptroller, a fee to the school district, and an Economic Benefit Statement with specific requirements.
The Comptroller will have 60 days after receipt of a complete application to consider and make a recommendation of approval, with notice to the Governor, the school district, and the applicant. The Governor has 30 days to consider and determine whether the application is agreeable. The school district likewise has 30 days to consider and determine whether to enter into the agreement. A public hearing on the application must be held during the 30-day period, with at a least 15-day notice to the public.
Other Program Highlights
- Unlike Chapter 313, Chapter 403 prohibits tax sharing payments to the school district. The application fee is the only amount that the school district may receive.
- The Governor or school district may terminate the agreement for failure to comply with the jobs or wage requirements. The applicant will have 180 days to cure such failures. Upon termination, the company would owe a penalty in the amount of all lost ad valorem tax revenue, plus interest.
- Applicants must submit biennial compliance reports to the Comptroller by June 1 of each even-numbered year.
- The Comptroller must submit biennial reports to the Legislature by December 1 of each even-numbered year that includes both aggregate and project-specific data.
- The State Auditor is required to audit at least 10% of all agreements in effect each year.
JETI Legislative Oversight Committee Established
Finally, the bill establishes the JETI Oversight Committee composed of seven members. The committee has no approval or disapproval authority but makes recommendations to the Legislature for modifying the eligibility requirements of the program.
The Chapter 403 incentives are scheduled to expire on December 31, 2033. Many details of the Chapter 403 program must be addressed by Comptroller rulemaking, which is forthcoming.
To learn more about this innovative new program, register for Ryan’s upcoming webinar to be held on August 16, 2023.
TECHNICAL INFORMATION CONTACTS:
Melissa Munoz
Principal
Ryan
505.312.4665
melissa.munoz@ryan.com
Holly Reed
Principal
Ryan
972.934.0022
holly.reed@ryan.com
Scott Retzloff
Principal
Ryan
210.377.3200
scott.retzloff@ryan.com
John Christian
Director
Ryan
512.476.0022
john.christian@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.