Refund for Economic Development

The Texas Tax Code provides for state tax refunds for economic development. Some Texas property owners may be eligible to receive refunds of state sales and use taxes and franchise taxes for paying local school property taxes, subject to the following requirements.

Refund Requirement

Sections 111.301 through 111.304 of the Tax Code provide for state tax refunds to qualified property owners who entered into property tax abatement agreements after January 1, 1996 with a city or county, but not a school district. Property owners with tax abatement agreements entered into on or before January 1, 1996 are not eligible for these state refunds, pursuant to Section 111.301, Tax Code. They are also not eligible if their property is subject to an appraised value limitation, pursuant to Chapter 313 of the Tax Code.

To be eligible for a refund, a property owner must have established a new business in a reinvestment zone or expanded or modernized an existing business located in the zone.

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 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.

A property owner’s potential refund equals the school property taxes paid by the owner in that tax year on property subject to a city or county abatement agreement. The maximum refund is 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 total for all refunds collectively may not exceed $10 million, the amount made available by the Texas Legislature, pursuant to Section 111.302(c), Tax Code.

Refund application

To claim a refund, 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 before August 1 of the year following the tax year that the owner paid the school district property taxes.

Refund amounts and duration

Within 90 days of the refund-filing deadline, the Comptroller’s office computes the total amount of all eligible refunds. The annual cap on funds means that property owners claiming refunds may not receive the full amount of school taxes paid and requested because the Texas Legislature appropriated only $10 million for each year of the biennium for the refund program.

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 $10 million. Owners may not claim the balance of a requested amount above the actual refund amount in a following year. Property owners also may not claim refunds that exceed the amount of net state sales and use tax and state franchise tax that they paid, after any applicable tax credit, in a given year.

The law 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.

Abatement reports

Section 312.005, Tax Code, requires the chief appraiser of a county appraisal district to file with the Comptroller a copy of any tax abatement agreement (and any additional information that the Comptroller requests) before July 1 of the year following the execution of the agreement. The abatement agreement must be on file with the Comptroller before the Comptroller may act upon a refund application.

More information by year is available in electronic format; please contact Patricia Bailey, Property Tax Assistance Division, by e-mail at patricia.bailey@cpa.state.tx.us, or by phone toll free at 1-800-252-9121, extension 3-4416, or direct in Austin at 512/463-4416.

Summary of Refund Data

Except for 1997, the first year of the refund, the full $10 million has been refunded each year. The following data is a summary by year of the applications for the Refund for Economic Development to the Comptroller’s office from 1997 through 2005.