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Appraised Value Limitation and Tax Credit

School Districts May Receive Applications This Summer

In 2001, the 77th Texas Legislature enacted House Bill 1200 creating Tax Code Chapter 313, Texas Economic Development Act. This Act allows school districts to attract new taxable property by offering a tax credit and an eight-year limitation on the appraised value of a property for the maintenance and operations portion of the school district property tax. School districts may be receiving the first applications this summer.

School reinvestment zone

The school district board may approve qualified land that is located in an area that is designated as a reinvestment zone under Tax Code Chapter 311 or 312, or as an enterprise zone under Government Code Chapter 2303, by the county commissioners court and the governing body of each municipality, provided that all the qualified land falls within this designated zone.

The school board also may designate an area that is entirely within the territory of the school district as a reinvestment zone under Tax Code Section 312.0025. The school board must find that designating and granting a limitation on appraised value under Chapter 313, Subchapter B or C, for property located in the reinvestment zone, is reasonably likely to:

  1. contribute to the expansion of primary employment in the zone; or
  2. attract major investment in the zone that would benefit property in the reinvestment zone and the school district, and contribute to the economic development of the region of this state in which the school district is located.
The school board may seek the recommendation of the county commissioners court and the governing body of each municipality that has territory in the school district before designating an area as a reinvestment zone.

Property requirements

In exchange for the appraised value limitation and tax credit, the property owner must enter into an agreement with the school district to create a specific number of jobs and build or install specified types of real and personal property worth a certain amount. The agreement must specify what is expected of each party, including the terms and conditions required by law and provisions to protect the school district.

To qualify, the property must be in a reinvestment zone and must be devoted to manufacturing, research and development, or renewable energy generation.

The applicant has a two-year qualifying time period in which to make the required amount of investment. In addition to the eight-year limitation, the applicant may file a separate application for a tax credit for taxes paid in excess of the value limit in either year of the two-year qualifying period.

Property classes

The law defines two overlapping classes of property — “qualified investment” and “qualified property” — that are used for different purposes in the value limitation process.

During the two-year qualifying time period, the applicant must build or install qualified investment that exceeds a specified amount in order to receive an appraised value limitation. Qualified investment does not include land.

Qualified property is property that may receive a value limitation and does include land.

Investment amount

The amount of investment and the minimum amount of the value limitation vary according to whether the school district is considered a rural or non-rural district and according to the amount of taxable property value in the school district.

The Act categorized rural school districts in five categories based on the amount of taxable industrial property in the school district. It categorized non-rural school districts in five separate categories based on the total amount of taxable property in the school district. As the amount of taxable property increases from category to category, the minimum required investment and the minimum amount of value limitation increase.

See the two charts below for the minimum required investment for rural or non-rural school districts.

CATEGORIZATION OF NON-RURAL SCHOOL DISTRICTS
Subchapter B, Chapter 313

Tax Code Section 313.022 categorizes school districts according to the taxable value of property in the district for the preceding tax year determined by the Texas Comptroller, as follows:

Category   Taxable Value of Property
I   $10 billion or more
II   $1 billion but less than $10 billion
III   $500 million but less than $1 billion
IV   $100 million but less than $500 million
V   Less than $100 million


MINIMUM AMOUNTS OF QUALIFIED INVESTMENT

For each category of school district established by Section 313.022, the minimum amount of a qualified investment under Section 313.021(2)(A)(iv)(a) is as follows:

Category   Minimum Qualified Investment
I   $100 million
II   $80 million
III   $60 million
IV   $40 million
V   $20 million

CATEGORIZATION OF RURAL SCHOOL DISTRICTS
Subchapter C, Chapter 313

Tax Code Chapter 313, Subchapter C, applies only to a school district that has territory in a strategic investment area, as defined by Section 171.721, Tax Code, or in a county: (1) that has a population of less than 50,000; (2) that is not partially or wholly located in metropolitan statistical area; and (3) in which, from 1990 to 2000, according to the federal decennial census, the population: (A) remained the same; (B) decreased; or (C) increased, but at a rate of not more than three percent per annum.

For purposes of determining the required minimum amount of a qualified investment under Section 313.021(2)(A)(iv)(a) and the minimum amount of a limitation on appraised value under this subchapter, Section 313.052 categorizes school districts according to the taxable value of industrial property in the district for the preceding tax year as determined by the Texas Comptroller, as follows:

Category   Taxable Value of Industrial Property
I   $200 million or more
II   $90 million but less than $200 million
III   $1 million but less than $90 million
IV   $100,000 but less than $1 million
V   Less than $100,000


MINIMUM AMOUNTS OF QUALIFIED INVESTMENT

For each category of school district established by Section 313.052, the minimum amount of a qualified investment under Section 313.021(2)(A)(iv)(a) is as follows:

Category   Minimum Qualified Investment
I   $30 million
II   $20 million
III   $10 million
IV   $5 million
V   $1 million

Application process

To obtain a limitation, a property owner must file a comptroller-prescribed application form with the school district. The school district may choose not to consider the application. If the school district decides to consider the application, the school district must send a copy of the application to the comptroller and the relevant appraisal district. The school district must retain the services of a third party to perform an economic impact analysis.

After reviewing the application, the comptroller is required to make a non-binding recommendation to the school district on whether to accept or reject the application. The school district may approve the application only if it finds that the information in the application is true and correct, finds that the applicant is eligible for the limitation, and determines that granting the application is in the best interest of the school district and this state.

School districts may be receiving the first applications this summer. A property owner who wants the qualifying time-period to begin on January 1, 2003, must file an application before September 4, 2002. See the time-line below for an overview of the sequence of events related to this new law.

timeline


Appraisal district

When appraising a property owner’s qualified property that is subject to a limitation on appraised value under this Act, the chief appraiser shall determine the market value of the property and include both the market value and the limited value in the appraisal records.

Each year, the chief appraiser shall compile and send to Texas Economic Development a list of properties, including both taxable real and personal property that a person owns at one site, that in that tax year have a market value of $100 million or more or are subject to a limitation on appraised value under Tax Code, Chapter 313.

The chief appraiser’s list shall include, at a minimum:

  • appraisal district name,
  • name of any other appraisal district that appraises the property,
  • appraisal district number that the comptroller has assigned,
  • name of each school district that taxes the property,
  • each school district number that the Texas Education Agency has assigned,
  • each account number that the appraisal district has assigned,
  • each taxpayer name,
  • market value of the taxable real and personal property that the taxpayer owns at that site,
  • taxable value of the taxable real and personal property that the taxpayer owns at that site,
  • tax year to which the listed information pertains, and
  • name and telephone number of a person at the appraisal district who is responsible for the compiled information.

Tax rate limitation

A school district may not adopt a tax rate that exceeds the school district's rollback tax rate under Tax Code Section 26.08 for each tax year during the qualifying time period.

If the school district approves a subsequent application for an appraised value limitation while the restriction on the school district's tax rate is in effect, the restriction on the school district's tax rate extends until the expiration of the second anniversary of the subsequent application approval date.

Tax credit

A property owner receives a property tax credit for part the taxes paid to the school district for each tax year during the qualifying time period. The tax credit is an amount that is equal to the difference between the amount of tax that was actually paid on the qualified property and the amount of tax that would have been paid based on the appraised value limitation to which the school district agreed.

To be eligible for a tax credit, the owner must submit an application for tax credit before September 1 of the year that immediately follows the applicable qualifying time period to the school district to which the property taxes were paid. The owner must:

  1. file a completed Application for Tax Credit on Qualified Property (Form 50-300) or an alternative form that is authorized.

  2. attach tax receipts from the school tax collector that show full payment of school district property taxes on the qualified property for the applicable qualifying time period;

  3. attach a copy of the agreement between the applicant and the school district under Tax Code Section 313.027 or Section 313.051; and

  4. include any other document or information that the comptroller or the school district considers necessary for determining the applicant's eligibility for the tax credit or the amount of the tax credit.

A school district must determine the owner's eligibility for a tax credit before the 90th day after the date the school district receives the tax credit application. If a school district determines that the owner is eligible for a tax credit and verifies the total tax credit, then the school district shall direct its tax collector to apply the tax credit against any taxes that the school district imposes on the qualified property as follows:

  1. apply one-seventh of the total tax credit for seven tax years beginning with the tax year that follows the tax year in which the application for tax credit was approved, and for six tax years thereafter;
  2. the maximum amount of tax credit that may be applied in each tax year may not exceed 50 percent of the total amount of school property taxes imposed on the qualified property in that tax year;
  3. apply any tax credit that remains as a result of the application of the cap that is imposed by (B) above in the first tax year that begins on or after the date on which the owner's eligibility for the appraised value limitation expires, but the maximum amount may not exceed the total amount of school property taxes imposed on the qualified property in that tax year. Any remaining tax credit that is not used expires.

No tax credit will be allowed for either the tax year in which the owner relocates the business outside the school district or the tax years thereafter.

If the comptroller and a school district determine that a person who received a tax credit was either not eligible for the credit or received more credit than the person was entitled, then the school district shall impose an additional tax on the qualified property that is equal to the amount of tax credit that was erroneously taken, plus interest at an annual rate of 7 percent, calculated from the date on which the credit was issued.

A tax lien attaches to the qualified property in favor of the school district to secure payment of any additional tax and interest that are imposed and any penalties incurred. A person who is delinquent in the payment of an additional tax may not submit a subsequent application or receive a tax credit in a subsequent year.

Comptroller rule

The Comptroller is in the process of adopting Rule Section 9.107, Appraised Value Limitation and Tax Credit for Certain Qualified Property. This new proposed rule adopts application forms for taxpayers to use in applying for the value limitation and tax credit and specifies the requirements of the new law. The Comptroller published the proposed rule in the May 3 edition of the Texas Register.

The Comptroller’s model forms are titled Application For Appraised Value Limitation On Qualified Property (Form 50-296) and Application For Tax Credit On Qualified Property (Form 50-300).

Property value study

In the Comptroller’s Property Value Study (PVS), the Property Tax Division (PTD) will deduct from a school district’s market value that portion of the market value of the property not fully taxable because the school district acted under Tax Code Chapter 313. The PVS includes a study of school taxable values for purposes of state funding.

If a school district grants this appraisal limitation and reports the value loss to the PTD, then the PTD will exclude that value from the study findings for that school district. This change to Government Code Section 403.303 begins with the 2002 PVS.

This article is intended only as a brief summary of the new law. Readers should refer to the law and the new rule for the actual details and requirements of the tax credit and appraised value limitation.