State Tax Refund
For Economic Development
Table 1: Tax Year 2001 Applications
Table 2: Tax Year 2001 Refunds Paid
Appendix A. Tax Code Section 111.304
Appendix B. Comptroller Rule Section 9.105.
Appendix C. Comptroller Refund Application
The Texas Tax Code provides for state tax refunds for economic development. Some Texas property owners are eligible to receive refunds on their net state sales and use taxes and franchise taxes for paying local school taxes. The total for all refunds collectively may not exceed $10 million, the amount made available by the Texas Legislature.
Tax year 2001 was the fifth year that companies could apply for reimbursement of school taxes paid on a property that received a county or city abatement but not a school tax abatement. Companies had to file their refund applications before August 1, 2002. Of the 155 individual refund applications received for 2001 taxes, the Comptroller’s office approved 139 applications representing 90 companies. While the approved 2001 refunds totaled $65.3 million, these 90 companies received total refunds of $10 million (the maximum amount made available by the Texas Legislature) to reimburse them for paying 2001 school taxes.
This report documents the applications for refunds filed with the Comptroller’s office and the refunds subsequently paid. See Table 1 for the filed 2001 refund applications and Table 2 lists the companies receiving 2001 refunds.
The 2000 tax year refunded the full $10 million to 82 companies The 1999 tax year refunded the full $10 million to 62 companies. For tax years 1997 and 1998, the Comptroller’s office refunded $4,886,663 to 10 companies and the full $10 million authorized by law to 28 companies respectively for paying school taxes.
Starting in 1997, property owners were eligible to receive refunds on their net state sales and net franchise taxes. Senate Bill 345, 74th Texas Legislature, 1995, added Tax Code Sections 111.301 to 111.304 to implement the refund process. The Tax Code requires the Comptroller’s office to issue state tax refunds to qualified property owners who entered into property tax abatement agreements—after January 1, 1996—with a city or county, but not a school district. Property owners with tax abatement agreements entered into on or before this date were not eligible for these state refunds.
State law requires that the Comptroller adopt rules on this process for these state refunds. The Comptroller adopted Rule Section 9.105, Tax Refund for Economic Development, to implement this process.
To be eligible for a refund, a property owner must have established a new business in a reinvestment zone, or expanded or modernized an existing business located in the zone. The city or county must have granted a tax abatement for the owner’s property, but not the school district.
Since entering into a city or county abatement agreement, the property owner must have increased the business’s payroll by at least $3,000,000, specific to its property in Texas. Or, the owner must have increased the abated property’s appraised value by at least $4,000,000. The maximum refund is the lesser of the school taxes paid or the amount of net sales and use tax and net franchise tax paid for the tax year the refund is claimed.
The property owner is barred from a refund if the company has agreed to an in-lieu-of-taxes payment—including a gift, grant, donation or provision of in-kind services—to the city or county, if the payment exceeds $5,000 in value.
A property owner’s refund equals the school property taxes paid by the owner in that tax year on property subject to a city or county abatement agreement. The refund also must be within the state’s annual cap of appropriated funds for these refunds. If the school district had abated the property with terms identical to the city or county’s tax abatement agreement terms, the taxpayer would not have paid those school taxes.
To claim a refund, a property owner must submit an application to the Comptroller’s office, along with the school district tax receipts showing the amount of school taxes paid on the property. A property owner must file the refund application before August 1 of the year following the tax year that the owner paid the school district property taxes.
Refund amounts and duration
Within 90 days of the refund-filing deadline, the Comptroller’s office computes the total amount of all eligible refunds. The annual cap on funds means that property owners claiming refunds may not receive the full amount of school taxes paid and requested because the Texas Legislature appropriated only $10 million for each year of the biennium for the refund program.
If, in any year, the total amount of all refunds claimed by property owners exceeds $10 million, the Comptroller’s office must reduce each claimant’s refund proportionally so that all property owners share in the $10 million. Owners may not claim the balance of a requested amount above the actual refund amount in a following year. Property owners also may not claim refunds that exceed the amount of net state sales and use tax and state franchise tax that they paid, after any applicable tax credit, in a given year.
The law provides that property owners may receive these refunds on state taxes for the lesser of five years or the duration of the tax abatement agreement with the city or county. If the property owner or the taxing unit cancels the tax abatement agreement or the property owner relocates the business outside the reinvestment zone, the owner’s right to claim a refund ends.
On September 1, 1997, the Comptroller's Property Tax Division (PTD) assumed responsibility for the state's Central Registry of Reinvestment Zones and Ad Valorem Tax Abatement Agreements. House Bill 1526—enacted by the 1997 Legislature—moved the registry to the Comptroller’s office from the Texas Department of Economic Development (formerly, Texas Department of Commerce).
Each taxing unit that designates a reinvestment zone or executes a tax abatement agreement must notify the registry each year, before April 1 of the year following the year in which the zone is designated or the agreement is executed.
The taxing unit notification must contain three primary elements. First, for a reinvestment zone, the taxing unit must provide a general description of the zone, including its size, the types of property located in it, its duration, and the guidelines and criteria established for the reinvestment zone under Tax Code Section 312.002. The taxing unit also must send any subsequent amendments and modifications of the guidelines or criteria.
Second, the taxing unit must provide a copy of each tax abatement agreement to which it is a party. Third, the unit must send any other information required by the Comptroller’s office to fulfill its statutory responsibilities.
The Comptroller’s Property Tax Division and the Texas Department of Economic Development provide technical assistance to taxing units and taxpayers on tax abatement agreements and reinvestment zones. For additional information, please call the Comptroller’s office technical assistance hotline at 1-800-252-9121. In Austin, call 305-9999.