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Tax Incentives for Businesses in Texas

The state of Texas has the second largest GDP in the United States, and at $1.6 trillion it accounts for nearly 9 percent of the US total. A Forbes report listed the Lone Star state in fourth place along a number of crucial rankings, including Best Place for Business and Best in Business Costs. Other key metrics like business density, start-up activity, and business survival rates are also among the top 5 of all 50 states. More importantly, the state is known for its favorable tax climate, which ranked 10th in the 2016 State Business Tax Climate Index. Overall Texas spends a total of $19b per year on incentive schemes, of which $743 million are devoted to corporate rebates or reduction programs, such as the ones listed below.

Enterprise Zone Program

This program was created to promote job creation and attract private investment in designated distressed counties. The program offers businesses involved in qualifying projects a sales tax refund whose amount depends on capital investment and the number of jobs created. Total refunds go from $25,000 up to a maximum of $3.75 million.

Texas Enterprise Fund

This Fund was created in 2004 to favor the creation of high paying jobs and to promote Texas as a top destination for business. The incentive involves the award of a cash grant whose specific dollar amount varies depending on scope of the project, but can go anywhere from $194,000 to $50 million. So far, cash grants have been awarded to businesses of all sizes and sectors, from JPMorgan Chase to Tyson Foods, Jamba Juice, and Petco.

Data Center Exemption

Under this incentive scheme, exemptions are applied to use and state sale taxes (which amount to 6.25 percent) for the purchase of cooling and or electrical systems, electricity, hardware, software, peripherals, emergency generators, and any other equipment needed to operate personal property within the building. To qualify, data centers must employ a minimum of 20 people and make an initial capital investment of $200 million.

R&D Deductions

Since 2014, the state of Texas has been offering a sales tax exemption to companies involved in qualifying research and development activities. This exemption applies to the purchase of depreciable tangible personal property, and to the storage, rental, or purchase of R&D facilities that are directly used in such activities.

Margins Tax

In April 2017, the state’s House of Representatives vowed to do away with margins tax, which is sometimes called State Franchise Tax. This move is expected to bring additional tax relief to local businesses, which had been largely opposed to this tax for years as they described it as unfair and a source of unnecessary administrative burdens. The repeal is expected to be fully implemented by 2024.

Bill 1290

Also in the spring of 2017, another piece of legislation was passed that aims to create an even more favorable business climate across the state. Bill 1290 is meant to address complaints by business groups, which identified unreasonable government regulations as one of the main hurdles to growth. Under the new regulation, lawmakers must scrap a rule or law for every new one that is introduced, helping reduce legislative burdens and facilitating compliance.

A full list of tax incentives is available here and from the Office of the Governor. In addition to the above, there are a number of location-specific incentives offered by local chambers of commerce and city governments in Austin, Houston, Dallas, and San Antonio.












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