Tax Incentive Provisions for Local Governments in Texas Set to Sunset Next Year

Attracting new businesses is a major point of emphasis for many Texas cities. New business means a growing community and new job opportunities.

In Texas, cities and counties currently have a powerful instrument at their disposal to entice new businesses to join their community, but that may not be the case going forward. Under the current Texas Tax Code, cities and counties are permitted to enter into property tax abatement agreements with new and existing businesses. This gives Texas cities the power to limit the property taxes assed on repairs or improvements to certain properties for up to 10 years.

For many businesses, this is a huge advantage and a major draw. This allows Texas communities to not only attract new business, but also encourage growing businesses to stay by offering temporary property tax breaks. Businesses may very well choose one location over another based on such tax incentives. As we have written about before, Texas law currently provides for local governments to establish designated reinvestment zones for tax abatement agreements.

Recently, Amazon sought a location for its second headquarters. The new headquarters would create tens of thousands of high paying jobs in the chosen community. Amazon was courted by hundreds of cities and counties nationwide. The company issued a request for proposals which outlined many of the qualities they are seeking in a community. Among those considerations were economic incentives and a “local government structure and elected officials eager and willing to work with the company.”

The Texas property tax abatement laws allow cities and counties to not only provide a tax incentive, but also to demonstrate that they are willing to work with businesses to benefit all parties involved. We have previously explored various economic development strategies in a presentation dubbed, “A Tale of Three Cities.”

As it currently stands, these tax abatement provisions are a very influential tool which can be wielded for the benefit of Texas cities. However, as the law currently states, this may not always be the case. The power to provide these tax incentives can be found in Chapter 312 of the Texas Tax code. Under the current tax code, this chapter is set to expire September 1, 2019, if it is not renewed or extended.

In order for cities and counties to retain this power, a bill to extend the expiration date is required. Such a bill will have to pass both the Texas House of Representatives and the State Senate before being signed by the governor, prior to the 2019 expiration date. While extending the expiration date may seem like a no-brainer to some, there’s no guarantee that Chapter 312 will be extended beyond 2019.

There are those who argue that the tax abatement for businesses shifts more of a tax burden onto the homeowners of the community. With arguments on both sides, it’s unclear whether or not this deadline will be extended beyond the current expiration date. If Chapter 312 does expire, local taxing entities will certainly be losing a powerful and influential tool for attracting businesses to their communities. Regardless of your stance on the issue, if you have an opinion you can certainly make yourself heard by contacting your state representatives.

Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our municipal law practice can be found here.