State Refunds for Economic Development91 Companies Refunded $10 Million for 2002 School Taxes
The Texas Tax Code provides for state tax refunds for certain 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 maximum amount made available by the Texas Legislature.
Tax year 2002 was the sixth 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 with the Comptroller’s office before August 1, 2003.
Of the 162 individual refund applications received for 2002 taxes, the Comptroller’s office approved 150 applications representing 91 companies. While the approved 2002 refund claims totaled $71.2 million, these 91 companies were allocated a proportionally reduced amount so that they all received a share of the $10 million (the maximum amount made available by the Texas Legislature) to reimburse them for paying 2002 school taxes.
Tax Code Section 111.304 requires the Comptroller’s office to submit a December 1 report to the Texas Legislature about these annual state refunds.
Prior years
Tax year 1997 was the first 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. In that year, 10 companies received total school tax refunds of $4,886,663.
After the initial slow start in 1997, the Comptroller’s office refunded the full $10 million in school taxes to 28 companies for tax year 1998, 62 companies for 1999, 82 companies for 2000 and 90 companies for 2001.
Refund requirements
To be eligible for a refund, a property owner must have established a new business or expanded or modernized an existing business located in a reinvestment 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 either 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.
The refund also must be within the state’s annual cap of appropriated funds for these refunds. 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 state appropriated $10 million.
The law also 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.
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. Property owners with tax abatement agreements entered into on or before this date were not eligible for these state refunds.
2003 refund applications
To claim a refund for 2003 school taxes, 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 by July 31, 2004.
Tax Code Section 111.302 provides the Comptroller with 90 days to compute the total amount of eligible refunds.
Finally, Tax Code Section 111.302(d) addresses county and city agreements that offer different levels of abatement. It states: “If an eligible person has entered into tax abatement agreements with the municipality and the county, and the agreements provided to the comptroller show that the agreements exempt different portions of property value, the refund amount shall be computed based on the greater of the portions exempted.”
For more information about this state refund program, contact Patricia Bailey at the Comptroller's Property Tax Division by e-mail at patricia.bailey@cpa.state.tx.us or call 1-800-252-9121, extension 3-4416. In Austin, call (512)463-4416.
