Not only are both Palestine and the state of Texas committed to business development, employee recruitment and retention, its corporate and government leaders know that economic growth begins with affordability. Existing and emerging companies, as well as individual entrepreneurs and mid-sized concerns, can take advantage of a number of tax incentives, covering significant investment areas like natural gas and electricity, machinery and equipment. Enterprise Zones reward innovation. And a number of incentives exist for research and development, as well as continuing education.
If the company locates within the State-designated City of Palestine Enterprise Zone, it is eligible for either Enterprise Project or Qualified Business incentives associated with the zone. The site(s) submitted to you is/are located within the Enterprise Zone. The following incentives should be available for this project.
State Zone Incentives for Enterprise Projects (limited to 85 State designations per biennium) A company will be eligible for Enterprise Project designation if it creates 10 new permanent jobs over and above those jobs it currently has in place in the zone and at least 25% of its new employees are economically disadvantaged. The company must maintain those levels during the five-year period of the designation and must be nominated by the City. The incentives available for enterprise projects are:
- A refund of state sales or use tax paid on all tangible personal property and taxable services for use in the enterprise zone for up to $5,000 for each permanent job created or retained during the 5 year designation period ($250,000 per year up to $1.25 million maximum); and,
- A franchise tax benefit on the annual report filing for each year of the five-year designation of the zone. The franchise tax is based on the project’s taxable capital or earned surplus income, and the reduction is based on the amount of capital investment made by the project in the enterprise zone. The project’s apportioned taxable capital may be reduced by 50% of the capital investment or the apportioned earned surplus income may be reduced by 5% of the capital investment; and,
- Certain franchise tax economic development credits on franchise tax reports due on or after September 1, 2003 and before January 1, 2005. The Texas Comptroller of Public Accounts will determine potential franchise tax benefit under this section of the program: 512.463.4496.
State Zone Incentives for Qualified Businesses If a project is not designated an Enterprise Project, it may receive benefits as a Qualified Business. Qualified businesses must create or retain at least 10 jobs in the zone and may receive:
- A one-time state sales tax refund of up to $5,000 paid on machinery and equipment for retaining at least 10 jobs in the enterprise zone;
- A one-time franchise tax refund of up to $5,000 for creating at least 10 jobs in the enterprise zone; and,
- Priority or preference for all programs administered by the state.
Local Zone Incentives for Enterprise Projects and Qualified Businesses: The company can receive a negotiated one-time sales tax refund of City of Palestine sales and use taxes paid for building materials used in building a new industrial structure, including all structural steel, lumber, bricks, flooring, electrical system, cooling and heating systems, plumbing and including concrete, asphalt and masonry. The City may waive development fees, accelerated zoning and permitting are also available.
Property Tax Rule 9.105
The Texas Comptroller of Public Accounts offers a refund of 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:
- Paid property taxes to a school district on property located in a reinvestment zone.
- Is exempt in whole or in part from property tax imposed by a city or county under a tax abatement agreement.
- Is not in a tax abatement agreement with a school district.
Texas Economic Development Act (Brimer HB 1200)
This act provides relief from school district property taxes for companies making large capital investments of $20 million to $100 million or greater. The appraised value of qualifying capital investments is capped based on a sliding scaled tied to the total property wealth of the school district where the investment is located. The investment amount is determined over a 2-year period. In general, a school district may abate 100% of the appraised value over the applicable cap of improvements and tangible personal property used in manufacturing for up to 8 years, beginning in the third year of investment. The company will pay taxes based on the full-appraised value during the first two years but is entitled to a refund of any amounts paid during that period on the value in excess of the applicable cap. In addition the company must create at least 25 new permanent jobs, pay at least 80% of a group health benefit plan for its employees, and pay at least 100% of the county average weekly wage.
Research and Development Tax Credits
A research credit is available to corporations making research and development expenditures for qualifying costs associated with research conducted anywhere in the state.
Natural Gas and Electricity Sales and Use Tax Exemption
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 predominate use study showing that at least 50% of the electricity or natural gas consumed by the business directly causes a physical change to a product.
Manufacturing Machinery and Equipment Sales and Use Tax Exemption
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. Machinery exclusively used in processing agricultural products by the original producer is also exempt.
Clean Rooms Exemption
Clean rooms used in the production of semiconductor components are exempt as manufacturing equipment.
Texas Enterprise Fund
The 78th Legislature created the Texas Enterprise Fund, giving the governor the ability to respond quickly to opportunities to bring companies and jobs to Texas. The fund is intended to attract high-impact facilities that have the opportunity to provide high returns for taxpayer investment. The recent announcements of the new Toyota assembly plant in San Antonio and a state-of-the-art Texas Instruments semiconductor wafer fab in Richardson are both examples of projects that are eligible to benefit from the Texas Enterprise Fund.
More information on the Texas Enterprise Fund is available by visiting the website of the Office of the Governor.
The Texas Capital Fund
Designed to promote growth in non-entitlement areas, the Texas Capital Fund can be used for businesses creating new full-time jobs, a majority of which benefit low to moderate-income persons. This program requires an application and competitive rating process which sometimes delays the funding process. If the timing of the project makes it possible, the TCF programs available to Palestine are:
- TCF Infrastructure Grant Program Funds may be used for construction and/or improvements of water or wastewater facilities, public road construction, natural gas line services, rail spurs, and electric power services. Minimum and maximum awards are $50,000 and $750,000 and may not exceed 50% of the total project cost.
- TCF Real Estate Development Program Funds may be used to acquire, construct, or rehabilitate real estate to support a for-profit or a non-profit entity willing to commit to creating or retaining jobs primarily for low or moderate income persons. Minimum and maximum awards are $50,000 and $750,000 and may not exceed 50% of the total project cost.
Tax Increment Financing
The city can designate a reinvestment zone to provide tax increment financing of project costs for public works or public improvements in the zone. Tax increment bonds or notes may be used to pay project costs. The proceeds from taxes on improvements within the zone are used to pay the debt service on the bonds or notes or for the cost of the project for a designated time as determined by a TIF plan adopted by the taxing entities participating. School districts are prohibited from participating in TIFs. The TIF can be used to finance improvements required by a project in order to locate in the City of Palestine.
Industrial Revenue Bonds
PEDC may issue tax-exempt bonds to finance land and depreciable property for manufacturing facilities. The maximum bond amount is $10,000,000 for tax-exempt issues, and the maturity of the bonds may extend to the lesser of 40 years or 120 percent of the depreciable life of the assets being financed. Eligible project costs include the acquisition by a business of an existing facility, acquisition of land, construction of new facilities, machinery, tools, equipment, and a limited amount of the bond issuance costs. The bonds are subject to the state’s private activity bond volume cap administered by the Texas Bond Review Board.
Small Business Administration 504 Loan Program
The SBA 504 is a direct-lending program providing long-term financing for fixed assets at a fixed rate of interest at or below New York prime rate. Designed to create and retain full-time jobs and to help businesses start-up or expand, the loan usually includes a senior lien from a private-sector lender covering 50% of the project cost and at least 10% equity injection. Generally the business must create or retain one job for every $35,000 provided by the SBA. The maximum loan is $1,000,000 for job creation. Companies located in Palestine have access to the program through the East Texas Regional Certified Development Company.
Small Business Administration 7(a) Loan Guaranty Program
The SBA 7(a) program provides guarantees for small businesses unable to secure financing on reasonable terms through normal lending channels. The SBA will guarantee up to 75% of a private-sector loan up to a maximum of $750,000. The rate and term of the loan are set by the private-sector lender.
Economic Development Administration
This program provides grants funded on a competitive basis for public water and wastewater facilities, access roads, rail spurs, or projects consistent with an overall economic development plan that serves industry and commerce. The application and approval process requires additional time.
Texas Capital Access Program
The program is designed to increase the availability of financing for businesses and non-profit organizations that face barriers in accessing capital. Eligible borrowers can be any small business with less than 500 employees or a non-profit corporation. The proceeds may be used for working capital or the purchase, construction, or lease of capital assets including land, buildings, and equipment.
Linked Deposit Program
This program encourages lending to qualified businesses which are historically underutilized, child care providers, non-profit corporations and small businesses located in an enterprise zone. It offers lenders and borrowers a lower cost of capital. Loan amounts range from $10,000 to $250,000. Proceeds may be used for working capital, purchase, construction or lease of capital assets, including land, buildings and equipment.
Agricultural Business Programs
The Texas Department of Agriculture offers a variety of financing and guarantee programs to assist eligible businesses or individuals involved in agricultural-related economic development projects. These include: Texas Agricultural Finance Authority Loan Guaranty Program, Direct Loan Program, Loan Participation Program, Young Farmer Program, Farm & Ranch Finance Program, and Linked Deposit Program
Job Training Incentives
Skills Development Fund
This fund assists community and technical colleges in financing customized job training for local businesses. Average training costs are $1,000 per trainee. The fund will provide training for specific skills for workers who will be hired by the business. A business that forms partnerships with local community colleges and technical schools or the higher education extension agency may apply to the Texas Workforce Commission for funding.
Trinity Valley Community College
The Community Services Department at Trinity Valley Community College works with business and industry to design customized training to match the needs of a specific company. The college will work with business to access any training funds available for the project and can provide pre-employment testing and screening. TVCC also offers certificate and degree programs in a variety of fields and technical areas. Every program created by TVCC is a unique customized response to each company’s specific needs. For more information, contact Gayla Roberts at 903-675-6212
Local Workforce Development Board
Local boards overseeing training funds for specific regions have some programs available for training certain populations.