Review of Texas Tax Code, Chapter 313 ESC Region 3 SARA LEON & ASSOCIATES, LLC
Chapter 313, Texas Economic Development Act • Requires a minimum investment that is different for each school district. • Value limitation only impacts M&O portion of the school district property tax. • Applicant must create 25 or 10 high quality jobs (if district falls under Subchapter B or C respectively), build or install qualifying real and personal property, and maintain a viable presence in the District for the term of the agreement. • Tax relief must be a determining factor as to whether to locate in Texas. • The school district must elect to participate in order for the Applicant to receive this benefit. See comptroller.Texas.gov/economy/local/ch313
Chapter 313, Texas Economic Development Act Chapter 313, Texas Economic Development Act, is intended to encourage: • Large-scale Manufacturing • Research and Development • Renewable Energy Capital Investment Projects to the State of Texas Chapter 313 provides for Value Limitation Agreements—not Tax Abatement See comptroller.Texas.gov/economy/local/ch313
Eligibility Criteria Eligible projects include: • Manufacturing • Clean Coal • Research and Development • Nuclear Energy • Renewable Electric Generation • Computer Data Centers See comptroller.Texas.gov/economy/local/ch313
Chapter 313, Texas Economic Development Act An appraised value limitation is an agreement in which a taxpayer agrees to build or install property and create jobs in exchange for: A 10-year limitation on the taxable property value for school district maintenance and • operations tax (M&O) purposes. The minimum limitation value varies by school district. See comptroller.Texas.gov/economy/local/ch313
Example: Project Value-I&S and M&O compared 600000000 500000000 400000000 300000000 200000000 100000000 0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Project Value M&O Value
If the Board Votes to Accept the Application… Within 150 days of receiving the Comptroller’s Completeness Letter… District finance The Board must consultants Comptroller consider economic District delivers Comptroller impact studies and performs an perform copy of Application determines proposed agreement, economic impact independent Parties negotiate to the Comptroller Application is conduct a public study and certifies economic impact contract terms hearing, and vote to and Appraisal sufficient / / refuses to certify study to evaluate either approve or reject District complete project (90 days) the expected the Value Limitation Agreement. impact on District • Applicant pays an Appl pplic icatio ion F Fee to cover all costs—CCGB ( B (LOCAL) • For the term of the Agreement, any additional costs for reporting, etc., are pa paid b d by the he A Appl pplic icant.
Application Process To obtain a limitation on property value, the property owner must file an application with the • school district. The school district will determine whether to consider the application – at this point, the • district is only committing to review and consider and it does not require the district to approve anything at a later time. If the district decides to accept the application, a copy of the application is sent to the • Comptroller and local appraisal district. See comptroller.Texas.gov/economy/local/ch313
Application Process Upon receipt of the application, the Comptroller will: • Make a determination of the project’s eligibility under Chapter 313, • Notify the district of the determination, and • Provide a hearing and appeals process for applicants contesting the Comptroller’s • decision. See comptroller.Texas.gov/economy/local/ch313
Completeness The Comptroller will review the application and send the district and applicant a Completeness • Letter, which determines that the application has met all requirements. The Comptroller has 90 days from receipt of completed application to determine eligibility, • conduct economic impact evaluation, and make determinations required by Texas Tax Code 313.026. The school district has up to 151 days from the completeness letter to act on the application • (this timeline can be extended). See comptroller.Texas.gov/economy/local/ch313
Certification and Economic Impact Analysis After the Comptroller submits a completeness letter, the comptroller then performs the • economic impact analysis and submits to the district a Certification Letter. Based on the economic impact analysis and other information, the Comptroller makes • recommendations to the school district on whether to accept or reject the application. See comptroller.Texas.gov/economy/local/ch313
Approving Application The school district may approve the application only if the Board: • 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. See comptroller.Texas.gov/economy/local/ch313
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313 Agreements The agreements are created using a form provided by the Comptroller’s office. • The district and the applicants are allowed to negotiate the definitions, and sections 4, 5, and 6 • in the Comptroller’s form application. Section 4 of the application relates to Revenue Protection Payments • Section 5 relates to payments made if there is a determination that the agreement will cause • the District to incur extraordinary education-related expenses (such as a large increase in students) Section 6 relates to Supplemental Payments. • See comptroller.Texas.gov/economy/local/ch313
Revenue Protection Payments Parties negotiate terms to protect the District against revenue • loss. The agreement will include terms to guarantee that • as would have been received by the District in the absence of a 313 agreement. Not subject to recapture/funding formulas Typically paid in the second-third year of the limitation period.
Supplemental Payments Parties may agree to to the school district. • Statutory limit on per Year or $50,000 per year ≡ $10 100 p per er A ADA • (whichever is the greater value) Extraordinary educational expenses can be considered. • These terms are negotiated. • No other payments outside the Agreement may be made as additional consideration for the Agreement. •
Example Timeline • 10 10-year l limitatio ion n on the taxable property value for school district M&O purposes; • Project will be taxed for M&O purposes at the limit set by statute • Prope perty is taxable o on n I&S &S s side de for i its ful ull appr ppraised v d value Qualif ifyin ing Tim ime P Period 2 2020-202 2021 Value Limit itatio ion P Perio iod 2 2022-2031 031 2020 2022 2031 2021 Project is approved. Commercial operations Beginning in January Project goes back on begin. 2022, project is valued the tax rolls at full Construction begins. at $__ Million for M&O value* in January 2031. purposes. *at full value of depreciated assets
Definitions: Qualifying Time Period • The qualifying time period (QTP) is two full tax years. • The QTP may include the remainder of the year the application is approved, as well as the following two complete tax years- may be deferred up to 4 years. • This is the time that the qualified investment must be put into place. See comptroller.Texas.gov/economy/local/ch313
Definitions: Qualified Investment • Includes certain types of tangible personal property placed in service during the qualifying time period, or a building or non-removable component of a building that houses the eligible tangible personal property and that is build or constructed during the qualifying time period. • Does not include land, or any investments made outside of the qualifying time period. • Defined in Texas Tax Code 313.021(1). See comptroller.Texas.gov/economy/local/ch313
Definitions: Qualified Property • Qualified property is the property to which the property tax value limitation may be applied. • It includes land (which will also be subject to the value as limited by the agreement). • It may include certain investments made between the application review start date and the beginning of the qualifying time period. • Defined in Texas Tax Code 313.021(2). See comptroller.Texas.gov/economy/local/ch313
Definitions: Limitation Period • If the applicant makes the required qualified investment within the qualifying time period, then the 10-year limitation period will start. • Start date of the limitation period is determined by the agreement. • During the limitation period, the appraised value of the applicant’s qualified property for the district’s maintenance and operations ad valorem tax purposes will not exceed the lesser of: • The market value of the applicant’s qualified property, or • The minimum value limitation set by either section 313.027 or 313.054 of the Texas Tax Code. See comptroller.Texas.gov/economy/local/ch313
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