Review of Texas Tax Code, Chapter 313 ESC Region 3 SARA LEON & - - PowerPoint PPT Presentation

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

• Clean Coal
• Nuclear Energy
• Computer Data Centers

Eligible projects include:

• Manufacturing
• Research and Development
• Renewable Electric Generation

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
• perations tax (M&O) purposes.

The minimum limitation value varies by school district.

See comptroller.Texas.gov/economy/local/ch313

100000000 200000000 300000000 400000000 500000000 600000000 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Example: Project Value-I&S and M&O compared

Project Value M&O Value

If the Board Votes to Accept the Application…

District delivers copy of Application to the Comptroller and Appraisal District Comptroller determines Application is sufficient / complete Comptroller performs an economic impact study and certifies / refuses to certify project (90 days) District finance consultants perform independent economic impact study to evaluate the expected impact on District Parties negotiate contract terms

The Board must consider economic impact studies and proposed agreement, conduct a public hearing, and vote to either approve or reject the Value Limitation Agreement.

Within 150 days of receiving the Comptroller’s Completeness Letter…

• 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

฀ ฀. ฀฀฀ ฀ ฀฀ ฀฀฀ ฀฀฀ ฀

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 ฀฀฀฀฀

฀฀ ฀฀฀ ฀฀ ฀฀฀฀ ฀฀฀ ≡ $10 100 p per er A ADA per Year or $50,000 per year (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

2020 Project is approved. Construction begins. 2021 Commercial operations begin. 2022 Beginning in January 2022, project is valued at $__ Million for M&O purposes. 2031 Project goes back on the tax rolls at full value* in January 2031.

Qualif ifyin ing Tim ime P Period 2 2020-202 2021 Value Limit itatio ion P Perio iod 2 2022-2031 031

• 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

• n

n I&S &S s side de for i its ful ull appr ppraised v d value

*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

Subchapter B versus Subchapter C

• Texas Tax Code Chapter 313 provides that the required number of qualifying jobs, amount of investment, and

the minimum amount of the value limitation vary according to whether the school district is considered rural (subject to Subchapter C) or non-rural (subject to Subchapter B), and according to the amount of taxable property value in the school district.

• Districts become subject to Subchapter C either because of their demographic characteristics or because

the school district has territory in a county that qualifies as a Strategic Investment Area (SIA).

See comptroller.Texas.gov/economy/local/ch313

How many jobs must a project create?

• The projects in districts covered by Subchapter B must create 25 new qualifying jobs. Projects in Subchapter C

districts must create 10 new qualifying jobs.

• A school board can waive the job requirements if it makes a finding that the job creation requirement exceeds

the industry standards for that particular type of facility. It is common for wind and solar projects to request job waivers.

• If minimum jobs not created,
• breach of agreement
• possible recapture of ad valorem tax revenue lost as a result of the agreement, payment of a penalty or

interest, or both, on that recaptured ad valorem tax revenue.

Practical Considerations

• The school district has an annual reporting requirement / settle-up calculation responsibility. The District has

a choice in who makes the reports / calculations on its behalf. Applicant must cover all costs.

• Company must hold school district harmless for any lost M&O revenue to the school district.
• Any M&O revenue to the District (not including Robin Hood moneys that are recaptured) that is lost as a

consequence of the Agreement must be reimbursed to the District by the Applicant.

• The Board will make no decision on the Application until it receives a school finance study that shows the

anticipated economic impact of the Agreement on the District.

Sara Leon

Attorney SARA LEON & ASSOCIATES, LLC 2901 Via Fortuna, Ste. 475 Austin, Texas 78746 T: 512.637.4244 F: 512.637.4245 http://saraleonlaw.com/

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