economyEconomic Development

Chapter 312 Frequently Asked Questions

Tax Abatements

What is a tax abatement?

A tax abatement is an agreement between a local government and a property owner to exempt part of the taxes owed in return for improvements to the property. Abatements are governed by Tax Code, Chapter 312. Local taxing units can use abatements to attract development to their jurisdictions.

Why do local governments grant tax abatements?

Tax abatements reduce the cost to property owners of new development. This can help new businesses move to the region or help existing businesses expand. In return, the local government gets increased property values that will raise the tax base and, possibly, provide new jobs.

What are the benefits of a tax abatement?

While tax abatements are short-lived, they can have a significant future impact:

  • They reduce unemployment. A new business creates jobs. People employed by the business may use their income to build homes and buy goods and services, cars and other personal necessities.
  • They strengthen other businesses. Established businesses benefit when a new business opens. The increase in patrons allows other businesses to grow by investing in capital improvements and hiring new employees.
  • They increase tax revenue. When an abatement is offered, a city still benefits from increased tax revenues. Employees of a new business spend their money at local stores (which boosts sales tax receipts) and often build new homes (which increases property tax receipts). These things occur without the need to increase tax rates.
  • Tax receipts continue to grow long term after the abatement expires. Once a business is well-established within a community, the improvements and facilities that are added can be taxed. The tax rate and revenue from developed property is higher than on undeveloped property. This creates a long-term source of revenue for the city.
  • They provide a flexible economic development tool. Abatements can be viewed as a flexible option compared to other economic development tools since infrastructure improvements or risky building ventures could become fixed costs. Without the abatement, it may be financially unfeasible for retailers to build on a certain area, due to features like underground pipelines, stormwater storage or floodplain.
Which local governments can grant tax abatements?

Any local government that collects ad valorem tax can grant an abatement, but typically only a city or county can grant the first abatement on a particular property.

SEC. 312.002, SEC. 312.204, SEC. 312.402

What type of property can be abated?

Abatements can be granted for taxable real property, personal property or both.

SEC. 312.204

Are there any prerequisites for granting abatements?

Yes. Each taxing unit must pass a resolution stating its intention to grant abatements and establish guidelines and criteria that will govern the abatement agreements. Abatements can only be granted for property within a reinvestment zone.

SEC. 312.002

Are there reporting requirements for tax abatements?

Yes. Any appraisal district that includes a tax abatement reinvestment zone or abated property must submit reports about the zone and the abatement agreements to the Texas Comptroller of Public Accounts.

SEC. 312.005

Guidelines and Criteria

What should a taxing unit include in the guidelines and criteria?

The taxing unit should include:

  • the criteria a property must meet to be eligible for a tax abatement;
  • the terms of the agreement the taxing unit will offer; and
  • any other investments the property owner will be required to make.

Sec. 312.002

How long are the guidelines and criteria effective?

They are effective for two years from the date they are adopted. After they expire, the taxing unit will have to readopt them or adopt new guidelines and criteria if the taxing unit wishes to continue to grant abatements.

SEC. 312.002

Can the guidelines and criteria be amended or repealed?

Yes, but while they are in effect, they can only be amended or repealed with a three-fourths vote by the taxing unit's governing body. After they have expired, the taxing unit can adopt different guidelines and criteria.

SEC. 312.002

Reinvestment Zone

Who can designate a tax abatement reinvestment zone?

The governing body of a city or a county can designate an area as a reinvestment zone.

SEC. 312.201, SEC. 312.401

How do cities and counties designate reinvestment zones?

After holding a public hearing and finding the area meets statutory requirements, a city or county designates a reinvestment zone by ordinance or order.

SEC. 312.201, SEC. 312.401

Where can cities and counties designate reinvestment zones?

A city can designate a reinvestment zone within the city limits, in the city's extraterritorial jurisdiction or both. A county can designate a reinvestment zone within the county, but only outside city limits.

SEC. 312.201, SEC. 312.401

Does a city or county have to designate its whole jurisdiction as a reinvestment zone?

No. A reinvestment zone can be as large as the city or county or as small as one property. Cities and counties can designate multiple reinvestment zones in different sections of their jurisdictions.

SEC. 312.201, SEC. 312.401

What are the criteria an area must meet to be designated a reinvestment zone?

A city or county must find that designating an area as a reinvestment zone would:

  • contribute to the retention or expansion of primary employment; or
  • attract major investment in the zone that would benefit the property included in the zone and would contribute to the economic development of the city or county.

Cities must also find that the improvements sought are feasible and practical and would benefit the land included in the zone and the municipality after a tax agreement expires.

SEC. 312.201, SEC. 312.202, SEC. 312.401

What must the ordinance or order designating the zone include?

It must describe the boundaries of the zone and the eligibility of the zone for residential tax abatement or commercial-industrial tax abatement.

SEC. 312.201, SEC. 312.401

How long does a reinvestment zone last before expiring?

A zone that has been designated for tax abatements expires five years after the date of the designation.

SEC. 312.203, SEC. 312.401

Can a reinvestment zone be renewed when it expires?

Yes, a zone may be renewed for another five years each time it expires.

SEC. 312.203

Public Hearing

When does a city or county have to hold a public hearing on tax abatements?

A public hearing must be held before a city or county designates a reinvestment zone.

SEC. 312.201, SEC. 312.401

What notice is required for a public hearing about a reinvestment zone?

The city or county has to post notice of a public hearing in a newspaper in general circulation in the city or county at least seven days before the hearing. The city or county also has to deliver notice of the hearing to the presiding officer of every other taxing unit that has jurisdiction over the property at least seven days before the hearing.

SEC. 312.201, SEC. 312.401

Abatement Agreement

What property can a local government abate?

A local government can abate:

  • residential or commercial/industrial real property that is subject to ad valorem taxation in a reinvestment zone if the owner or leaseholder agrees to make improvements to the property;
  • a property owner's real property or tangible personal property that is located on the real property; and.
  • property subject to ad valorem taxation, including a leasehold interest, improvements or tangible personal property located on the real property that belongs to the owner of a leasehold interest in tax-exempt real property

SEC. 312.204, SEC. 312.206, SEC. 312.402

Can anyone receive an abatement?

No. Abatements cannot be granted on property owned or leased by a member of the city council, the zoning board, or the city's planning board or a member of the county commissioners court.

SEC. 312.204, SEC. 312.402

How much value can a local government abate?

Each year of an abatement agreement, a local government can abate up to 100 percent of the property value minus the value of the property the year the agreement was executed.

SEC. 312.204, SEC. 312.402

How many years can a property be abated?

A property can be abated up to 10 years per agreement.

SEC. 312.204, SEC. 312.402

Can a local government grant another tax abatement to the same property?

Only if the new agreement is for new improvements that will be made to the property.

SEC. 312.204, SEC. 312.206, SEC. 312.402

What is the process for granting and approving an abatement?

A local government must send written notice to the presiding officer of the governing body of every other taxing unit that taxes the property. The notice must include a copy of the proposed abatement agreement and be sent at least seven days before the agreement is executed.

To be effective, a tax abatement agreement must be written and it must be approved by majority vote of the members of the governing body of the taxing unit at a regular meeting.

The abatement typically begins on Jan. 1 of the year after it is executed unless the agreement stipulates a later start date.

SEC. 312.2041, SEC. 312.207, SEC. 312.007
What specific terms does a tax abatement include?

A tax abatement agreement must:

  • list the kind, number and location of all improvements to the property that will be made;
  • allow local government employees to access and inspect the property to ensure the terms of the agreement are met;
  • limit the uses of the property during the abatement period to uses that encourage development;
  • provide for the recapture of tax revenue if the owner fails to make the agreed upon improvements;
  • contain each term agreed to by the owner of the property;
  • require the property owner to certify annually that the owner is in compliance with the terms of the agreement; and
  • provide that the governing body of the local government may cancel or modify the agreement if the property owner fails to comply.

A tax abatement agreement may also include:

  • improvements or repairs the local government will make to streets and utility services, as long as the fees for those improvements are not reduced;
  • an economic feasibility study;
  • a map showing existing uses and conditions of property in the zone;
  • a map showing proposed improvements and uses in the zone;
  • proposed changes to local ordinances; and
  • provision for the recapture of tax revenue, along with penalties and interest, if the owner fails to meet other terms of the agreement.

SEC. 312.205

Does each tax abatement agreement have to have the same terms?

All the agreements made in a zone must have the same terms for value abated and duration. Different reinvestment zones can have different terms.

SEC. 312.204

Which entities can grant abatements?

Any taxing unit, except a school district, that has jurisdiction over a property can grant an abatement. If the property is:

  • in the city limits, the city must grant an abatement before another taxing unit is allowed;
  • outside the city limits and the city's ETJ, the county must grant an abatement before any other taxing unit can; or
  • within the city's ETJ, any taxing unit can grant an abatement first.

If the county commissioners court sets the tax rate for another taxing unit, the court can offer an abatement on behalf of that taxing unit for a property the county has already abated.

SEC. 312.204, SEC. 312.206
Do other taxing units have to offer the same terms as a city or county?

No. Once a city or county grants an abatement, another taxing unit can offer an abatement to the property owner with the same or different terms.

SEC. 312.206

Can an abatement agreement be changed?

Yes. Any time before the abatement expires, the local government can modify the terms of the agreement, assign it to a new owner of the property or cancel the agreement entirely.

SEC. 312.208

Can abated taxes be recaptured?

Yes. If the property owner fails to make the agreed upon improvements, the taxing unit can recapture tax lost because of the abatement. If the agreement includes the required provision, a taxing unit can also recapture taxes if the property owner fails to create an agreed upon number of new jobs or fails to meet any other provision of the agreement.

SEC. 312.205

Reporting

Who is required to submit reports to the Comptroller?

The chief appraiser of each appraisal district that appraises property for a taxing unit that has designated a reinvestment zone or executed a tax abatement must report information about the zone and the abatement to the Comptroller.

SEC. 312.005

What reports are required?

The chief appraiser must electronically submit the following to the Comptroller at econ.dev@cpa.texas.gov:

  • To designate a new reinvestment zone, submit Form 50-275 and the city or county's abatement guidelines and criteria.
  • To execute a new abatement, submit Form 50-276 and a copy of the tax abatement agreement.
  • To modify, assign to another party, or cancel an abatement agreement, submit Form 50-277 and a copy of the modified agreement.

The forms and supporting documentation are due before July 1 of the year following the designation of the zone or the execution or amendment of the agreement.

SEC. 312.005

What does the Comptroller do with the information submitted?

The Comptroller compiles the information about reinvestment zones and abatements and submits a report to the Legislature and the governor before each legislative session. The Comptroller also keeps a registry of reinvestment zones and abatement agreements.

SEC. 312.005

What information about abatements is available to the public?

Information about reinvestment zones and tax abatements is available in the Biennial Registries of Reinvestment Zones for Tax Abatements and Tax Increment Financing. The Comptroller's Data Analysis and Transparency Division can answer questions by phone at 800-531-5441 ext. 5-0664 or by email at econ.dev@cpa.texas.gov. Additional information can be obtained by submitting a written request to open.records@cpa.texas.gov.

Other

Does the Comptroller's office provide assistance to local governments regarding tax increment finance?

Yes. The Comptroller does offer guidance and technical assistance to city's interested in tax increment finance.

Need Help?

For additional information, contact the Data Analysis and Transparency Division via email or at 800-531-5441, ext. 3-4679, or 512-463-4679.

Disclaimer

This information should not be construed as, and is not a substitute for, legal advice.

Property owners and school districts are urged to consult the Attorney General's Economic Development Handbook and their own legal counsel for any questions or interpretations of economic development laws.