Texas has re-introduced an exciting new tax incentive, the Texas Job and Investment Tax Credit (JETI) under Section 403. This incentive program is intended to replace the popular Section 313 program that expired on December 31, 2022, and has been fine-tuned to reduce the amount of tax previously abated under its predecessor, limit eligible projects, and add oversight into the abatement process. The new incentives will become effective January 1, 2024, and guidance was expected on September 1, 2023 (as of the time this post was written, it has not yet been published).
In a nutshell, the incentives provide a break from school district taxes (often the largest component of any property tax bill in Texas), to capital-intensive companies that want to establish or expand their presence while creating jobs for their local communities.
Eligible projects for purposes of the JETI Act include the construction or expansion of a new or existing facility and may include the following:
A manufacturing facility;
A facility related to the provision of utility services;
A facility related to the development of natural resources;
A facility engaged in the research, development, or manufacture of high-tech equipment or technology; or
An expansion or the construction of critical infrastructure.
Eligible programs do not include a project to build or expand a new or existing non-dispatchable electric generation facility or electric energy storage facility. This eliminates the benefit of wind and solar farm projects.
The Act also ads limitation on the type of property that is eligible:
New buildings or expansion of an existing building, including a permanent, non-removable component of a building, constructed in a qualifying area after the agreement is executed; or
Tangible personal property (other than inventory) first located in a qualifying area after the agreement is executed.
A “qualifying area” is an area designated as a Reinvestment Zone in the Texas Tax Code.
The company will need to create a minimum number of full-time jobs, as well as a minimum Capital investment threshold based on the county population. This population-driven approach differs from the flat 25 job requirement. If a project is located in two counties, the requirements for the smallest population tier apply. Further, a Full Time Job is considered with a minimum 1,600 annual hours worked, maintained in the usual course and scope of the business or performed by an independent contractor. In-state job transfers are allowed, provided the vacancy is filled (Construction jobs do not count towards the job requirement).
The average annual wage must also exceed 110% of the average annual wage for all jobs in the applicable industry sector during the prior four quarters, and the applicant must offer or contribute to health insurance for each W-2 employee in a full-time job.
Overall, there is still a lot to be learned about how the comptroller will impose various provisions and whether school districts will be enticed to assist and offer this incentive to companies - even though the state makes them “whole.” The reality is that similar to how property tax abatements are currently negotiated with Texas cities and counties to attract projects, this tool enables school districts to compete for new investments that would not otherwise be located within their borders and generate property tax revenue.
Please be aware that the information has been gathered and condensed based on credible sources. Woodsedge Properties cannot assume any responsibility for potential inaccuracies or omissions. All information is presented “as is” and is intended for the benefit of our clients and prospective clients.