| Finance Incentives | Tax Incentives | Training Incentives | Other Incentives |
 
DISCLAIMER: The material contained in this page is provided for informational purposes only and cannot be construed as a commitment. Assumptions are based on creating jobs and providing a capital investment. Total jobs and capital investment have been included as eligible costs for the various incentive programs available. However, actual jobs and capital investment may vary from the assumptions made due to final determination of program eligibility and site location.


Finance Incentives

Texas Enterprise Fund

The 78th Texas Legislature established the Texas Enterprise Fund to provide financial resources to help strengthen the state's economy. The Governor, Lieutenant Governor, and the Speaker of the House must unanimously agree to support the use of the Texas Enterprise Fund for each specific project.

Projects that are considered for the Enterprise Fund support must demonstrate a project's worthiness, maximize the benefit to the State of Texas and realize a significant rate of return of the public dollars being used for economic development in Texas. Capital investment, job creation, wages generated, financial strength of the applicant, applicant's business history, analysis of the relevant business sector, and federal and local government and private sector financial support of a project will all be significant factors in approving the use of the Enterprise Fund.
 

Emerging Technology Program

The $200 million Texas Emerging Technology Program is designed to help Texas create jobs and grow the economy over the long-term by expediting the development and commercialization of new technologies and attracting and creating jobs in technology fields that will form the backbone of our economy. The program will work through partnerships between the state, institutions of higher education and private industry to focus greater attention on the research, development and commercialization of emerging technology. The Emerging Technology Program is dedicated to three areas:

1. Regional Center of Innovation and Commercialization (RCICs). These centers will become concentrated with applied R&D activities, be incubators (including specialized workforce training) for startup firms and encourage expansion of existing companies resulting from commercializing their developments.
2. Matching grand funds. Applied technology research and development projects that accelerate commercialization into production and have a demonstrated ability to receive or have received federal grants or non-state grants may apply for matching dollars from the Emerging Technology Fund. Grants such as Small Business Innovation Research grants, Small business technology Transfer grants, etc.
3. Attracting research talent. The state will help Texas public universities attract highly renowned research teams from universities and institutions in other states.

Texas Capital Fund Infrastructure Program

The Texas Capital Fund Infrastructure Program is an economic development tool designed to provide financial resources to non-entitlement communities. Funds from this program can be utilized for public infrastructure (water, sewer, roads, etc.) needed to assist a business, which commits to create and/or retain permanent jobs, primarily for low and moderate-income persons.  The minimum award is $50,000 and the maximum is $750,000. The award may not exceed fifty percent (50%) of the total project cost.
 

Texas Capital Fund Real Estate Development Program

The Texas Capital Fund Real Estate Development Program is designed to provide financial resources to non-entitlement communities. Funds must be used for real estate development (acquisitions, construction and/or rehabilitation) to assist a business, which commits to create and/or retain permanent jobs, primarily for low and moderate-income persons. This program encourages business development and expansions located in non-entitlement communities. The minimum award is $50,000 and the maximum is $750,000. The award may not exceed fifty percent (50%) of the total project cost.  Funds are provided with no interest accruing and with payments based on a 20-year amortization schedule. Total Texas Capital Fund participation from both Infrastructure program and Real Estate Development program may not exceed $750,000.

Rural Municipal Finance Program

The Rural Municipal Finance Program was created by the Texas Agricultural Finance Authority (TAFA) to stimulate economic activity in rural Texas. TAFA was created in 1987 as a Public Authority within the Texas Department of Agriculture

This loan program is designed for eligible applicants located within rural areas of the state that provide significant benefits for the rural area, and provide evidence of ability to repay the commitments.  Applicants can include: city and county governments; economic development corporations; hospital districts; rail districts; utility districts; special districts; agricultural districts; and private water and wastewater corporations.

An applicant must certify to TAFA that:

1. The project is located in a non-metropolitan statistical area (county); or
2. If in a metropolitan statistical area, the project is in an unincorporated area; or
3. Located in a city with a population of under 20,000, that is not adjoining a city or group of cities  with an aggregate population of 50,000 or greater.

Loan amounts range from $50,000 to an amount approved by TAFA’s board of directors, but target projects for less than $1,000,000. Loans may be used for real estate purchase, building construction, site improvements, equipment, water and wastewater systems, municipal infrastructure projects and any other use that can be identified to improve or assist in the economic development of the rural area.
 

Venture Capital - CAPCO

The Comptroller of Public Accounts and the Texas Treasury Safekeeping Trust Company is responsible for administering the new Texas CAPCO program. The program is funded by “Insurance Premium
Tax Credits”.

In essence, the CAPCO program is designed to encourage growth of businesses, create jobs and generate additional state tax revenues. The primary difference between a traditional venture capital investment and a state supported CAPCO structure is in the type and location of the businesses (the portfolio companies). As a method to encourage and retain high paying jobs and industries in Texas, the law requires CAPCOs to invest 30% of their capital in “strategically located” and 50% in “early stage” businesses.

In 2002, the total taxable premiums attributable to 1,381 licensed insurers and HMO’s in the state was over $49.3 billion. Texas’ tax revenue on those premiums was almost $773.5 million. Over the course of the next 10 years (without considering growth in premiums or tax rates) Texas should collect almost $8 billion in insurance premium tax. Tax credits under the CAPCO program may not be utilized until 2009 at the maximum rate of 25% of earned credits per year.

How the program works:

1. Beginning in January 2005, venture capital companies may make application (with a mandatory non-refundable fee of $7,500) to the Comptroller to become certified as a CAPCO.
   
2. Within 120 days of rule adoption (estimated to occur sometime in April, 2005) CAPCOs submit a request for an allocation of the total $200MM in available premium tax credits. These tax credits can only be used to offset future insurance premium taxes beginning in 2009 at the rate of 25% per year.
3. Insurance companies must commit to invest money in the CAPCOs up to the amount of their specific allocation.
4. CAPCO’s then repay the insurance company investors over time with a combination of earnings on their investments and future tax credits.
5. The CAPCOs earn the tax credits by investing in certain targeted Texas businesses.
    

Municipal Utility Districts 

Municipal Utility Districts (MUDs) can be created by provisions of the Constitution, the Water Code, or Legislative Act. MUDs may help finance the cost of water, wastewater, drainage and detention required for development, usually (but not necessarily) in unincorporated areas. MUDs have the power to levy an ad valorem tax to repay developers for the provisions of needed services plus the operation and maintenance of district facilities. MUDs generally reimburse developers from between 70% to 100% for water, sewer, drainage and detention costs, as well as associated financing costs. Some MUDs have road construction powers as well. MUDs have also recently been given broader powers to provide such additional services as garbage collection, security, and parks construction.

Economic Development and Diversification In-State Tuition for Employees 

The Economic Development and Diversification In-state Tuition incentive may be offered to qualified businesses that are in the decision-making process to relocate or expand their operations into Texas. The incentive allows employees and family members of the qualified businesses to pay in-state tuition fees if the individual files with a Texas institution of higher education.  Without this incentive designation, a student must reside in Texas for a 12-month period to be entitled to pay the tuition fees of a Texas resident.

Linked Deposit Program

The Linked Deposit Program was established to encourage lending to historically underutilized businesses, child care providers, non-profit corporations, and/or small or medium-sized businesses located in an Enterprise Zone. Use of proceeds may include working capital or the purchase, construction, or lease of capital assets, which include land, buildings and equipment. Loans to start-up businesses are permissible, subject to the lender's normal credit evaluation.

Loans are subject to the lender's normal credit evaluation. Minimum loan amount is $10,000; maximum loan amount is $250,000 with the loan term for no more than the useful life of the financed asset. Participating lenders pay a lower interest rate on the linked deposit received from the State.

Product Development Fund and Small Business Incubator Fund

The Product Development and Small Business Incubator Funds have been established as revolving loan programs through a $45 million bond issuance in 2005. The programs support the development of small businesses or eligible products with a statutory preference given in the areas of semiconductor, nanotechnology, biotechnology and biomedicine.

Texas Enterprise Zone Program

A community with less than 250,000 in population may have up to four enterprise projects. A community with 250,000 in population or greater may have up to six enterprise projects. Upon a community designating a business as an enterprise project, and upon that project’s designation being approved by the state, the business would be eligible for the following incentives:

State Sales and Use Tax Refunds

Beginning September 1, 2003 an enterprise project is eligible for a refund for state sales and use taxes paid for building materials, machinery and equipment, electricity and natural gas purchased and consumed in the normal course of business and depending on investment amount and number of jobs created/retained.

The refund can be an amount ranging from a minimum of $2,500 per job to a maximum of $7,500 per job as follows:

1. If project investment amount is greater than $40,000 and less than $400,000, then refund amount is $2,500 per job up to a maximum of 10 jobs created/retained;
2. If project investment amount is equal to or greater than $400,000 and less than $1,000,000, then refund amount is $2,500 per job up to a maximum of 25 jobs created/retained;
3. If project investment amount is equal to or greater than $1,000,000 and less than $5,000,000, then refund amount is $2,500 per job up to a maximum of 125 jobs created/retained;
4. If project investment amount is equal to or greater than $5,000,000 and less than $150,000,000, then refund amount is $2,500 per job up to a maximum of 500 jobs created/retained;
5. If project investment amount is equal to or greater than $150,000,000 and less $250,000,000, then refund amount is $5,000 per job up to a maximum of 500 jobs created/retained;
6. If project investment amount is equal to or greater than $250,000,000, then refund amount is $7,500 per job up to a maximum of 500 jobs created/retained;

Further eligible items include tangible personal property purchased and consumed in the normal course
of business and taxable services. Receipts for purchases of building materials and machinery and equipment and payroll information are required to be retained as part of the audit process. (Note: All contracts should separate the costs for building materials and/or equipment from the costs of labor and services in order to be eligible.) The refund for sales and use tax must be for all eligible items for use at the qualified business site.

Ad Valorem / Property Tax Abatement

Ad valorem (property) tax abatement in the Katy Area is provided by the three counties for Harris,
Fort Bend and Waller.  Below is a brief description of each county’s program.  For tax abatement,
a county must declare the site or area a reinvestment zone.  In terms of the processing
and administration of tax abatements, KAEDC will assist the company in preparing the application
and submitting it to the property authority. KAEDC can also assist with preparing an economic
impact analysis of the project if necessary.  Tax abatement application should be submitted to the
following contacts:

• Fort Bend County – Jeff Wiley, Greater Fort Bend Economic Development Council
• Harris County – David Turkel, Director of Economic and Community Development
• Waller County – Judge Owen Ralston, County Judge

 Tax abatement is discretionary and subject to approval by the appropriate authority.

Source: Greater Houston Partnership and Tax Abatement Guidelines from each county, 2005.
 

Ad Valorem / Property Tax Exemptions

A Texas constitutional amendment providing an exemption from property taxation for pollution control was approved in 1993. The intent was to ensure that compliance with environmental mandates, through capital investments, did not result in an increase in a facility’s property taxes.  A facility must first receive a determination from the Texas Commission on Environment Quality (TCEQ) that property is for pollution control purposes. That positive use determination is then provided to the local appraisal district, which must accept the TCEQ’s decision and grant the property an exemption from property taxes.

To be eligible for a positive use determination, the property must have been purchased, acquired, constructed, installed, replaced, or reconstructed after January 1, 1994 to meet or exceed federal, state, or local environmental laws, rules, or regulations.

State Sales and Use Tax Exemptions

Manufacturing Machinery & Equipment

Leased or purchased machinery, equipment, replacement parts, and accessories that have a useful life of more than six months, and that are used or consumed in the manufacturing, processing, fabricating, or repairing of tangible personal property for ultimate sale, are exempt from state and local sales and use tax. Texas businesses are exempt from paying state sales and use tax on labor for constructing new facilities.

Texas businesses are exempt from paying state sales and use tax on the purchase of machinery exclusively used in processing, packing, or marketing agricultural products by the original producer at a location operated by the original producer.

Natural Gas & Electricity

Texas companies are exempt from paying state sales and use tax on electricity and natural gas used in manufacturing, processing, or fabricating tangible personal property.  The company must complete a “predominant use study” that shows that at least 50% of the electricity or natural gas consumed by the business directly causes a physical change to a product.

Property Tax Rule 9.105

The Texas Comptroller of Public Accounts offers a refund of State franchise and sales/use taxes paid by companies owning certain abated property. A company who meets the following three conditions may apply for a refund:

1. Paid property taxes to a school district on property that is located in a reinvestment zone established under Chapter 312.
2. Is exempt in whole or in part from property tax imposed by a city or county under a tax abatement agreement established under Chapter 312.
3. Is not in a tax abatement agreement with a school district.

The refund is equal to the amount of property taxes that would have been paid had the company entered into a school district abatement agreement with terms identical to the city or county abatement agreement, not to exceed the net state sales and use taxes and state franchise taxes paid or collected and remitted during that calendar year. The refund amount may also be limited by a statewide appropriation per year for this refund program.

Freeport Exemption

A community may choose to offer the Freeport exemption for various types of goods that are detained in Texas for a short period of time. Freeport property includes goods, wares, merchandise, ores, and certain aircraft and aircraft parts. Freeport property qualifies for an exemption from ad valorem taxation only if it has been detained in the state for 175 days or less for the purpose of assembly, storage, manufacturing, processing, or fabricating. The following areas/districts in the Katy Area provide freeport exemption: Brookshire Katy Drainage District, Emergency Services Districts, all Municipal Utility Districts, and Water Districts.
 

Research and Development Franchise Tax Credit

A corporation may claim a credit for certain incremental qualified research expenses incurred and basic research payments made for research conducted in Texas during the period upon which the tax is based. The credit was 4 percent of qualified expenses on a report before January 1, 2002. The credit changes to 5 percent for reports after January 2, 2002. The credit applies to excess of qualified research expenses in Texas over a base year, plus basic research payments in Texas. Credits may not be combined with the Job Creation credit and may not exceed 25 percent of franchise tax due for reports before January 1, 2002 and may not be more than 50 percent of franchise tax due for reports after January 1, 2002. Credits can be carried forward 20 years.

Texas Economic Development Act

In 2001, the 77th Texas Legislature enacted House Bill 1200 creating Tax Code Chapter 313, Texas Economic Development Act, to encourage large-scale manufacturing, research and development, and renewable energy capital investment projects to the State of Texas.  It requires companies to invest a specified amount of money to qualify for 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. The local school district must elect to participate in order for the Company to recognize this benefit. The qualifying investment amount for the Katy Area begins at $100 million.

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Training Incentives

Skills Development Fund

The Skills Development Fund is an innovative program created to assist Texas public community and technical colleges finance customized job training for their local businesses.  The Fund was established by the Legislature in 1995 and is administered by the Texas Workforce Commission.  Grants are provided to help companies and labor unions form partnerships with local community colleges and technical schools to provide custom job training. Benefits may vary depending on the proposal.  

Self-Sufficiency Fund

The Self-Sufficiency Fund is a job-training program that is specifically designed for individuals that receive Temporary Assistance for Needy Families (TANF). The program links the business community with local educational institutions and is administered by the Texas Workforce Commission.  The goal of the Fund is to assist TANF recipients become independent of government financial assistance.  

The Fund makes grants available to eligible public colleges or to eligible private, non-profit organizations to provide customized job training and training support services for specific employers.  A joint application from the employer and the eligible public college and/or eligible private, non-profit organization is required to be submitted to the Local Workforce Development Board for review and comment prior to approval. 
 

Apprenticeship Training Program

The Texas Workforce Commission's Apprenticeship Training Program is an effective job training system for skilled trade and journeyworkers. Apprenticeship training is designed to prepare individuals for occupations in skilled trades and crafts and combines structured on-the-job training - supervised by experienced journeyworkers - with related classroom instruction. All apprenticeship training programs must be registered through the U.S. Department of Labor Employment and Training Administration's Bureau of Apprenticeship and Training. Apprentices who successfully complete the prescribed number of training hours in a registered apprenticeship training program can become certified and skilled journeyworkers.

The Texas Workforce Commission provides funds to local public educational institutions to support the costs of related classroom instruction in registered apprenticeship training programs. To qualify for funds, apprenticeship training programs and apprentices must be registered with the U.S. Administration's Bureau of Apprenticeship and Training.

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Other Incentives

Texas Commission for Environmental Quality Assistance for Brownfield Cleanup

In Texas, many former industrial properties lie dormant or underused due to liability associated with real or perceived contamination. These properties are broadly referred to as brownfields. The TCEQ, in close partnership with the U.S. Environmental Protection Agency (EPA) and other federal, state and local redevelopment agencies, is helping with cleaning-up, transferring and revitalizing brownfields through the development of regulatory, tax and technical assistance tools. In addition to the specific programs mentioned here, the TCEQ is available at no cost to local governments to provide technical advice, education and project partnering for brownfields redevelopment projects.

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