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The Texas Enterprise Zone Program

Credits & Incentives talk with Deloitte

“Credits & Incentives talk with Deloitte,” is a monthly column by Kevin Potter of Deloitte Tax LLP, featured in the Journal of Multistate Taxation and Incentives, a Thomson Reuters publication. The February edition authored by Kevin Potter, George Francis, and James Graham Keefe, provides an overview of the Texas Enterprise Zone Program, with discussion of the history and the mechanics of the program.

Overview

Texas has historically allowed local communities to lead the way in the realm of business attraction and the awarding of business incentives, notably through a statewide economic development program known as the Texas Enterprise Zone Program. This program allows companies that make capital investments and add (or in some cases commit to retain) employees to potentially qualify for valuable economic benefits. This column provides an overview of the Texas Enterprise Zone Program, with discussion of the history and the mechanics of the program.

Program overview

The Texas Enterprise Zone Program (Program) is an economic development tool by which local communities partner with the State of Texas to encourage job creation and capital investment in economically distressed areas of the state.1 For a business to potentially receive benefits under the Program, the local community must initially nominate a business for enterprise project designation. Each local community has a limited number of project designations it can allocate, and the state has a maximum number of 105 designations that can be awarded per two-year period.2

Smaller designated projects may receive a benefit of $2,500 per new or retained job over a five-year period. For larger capital projects, the benefit can increase to $5,000 or $7,000 per job. However, only projects creating at least 500 net new jobs qualify for this increased benefit. The benefit is received through a refund of Texas state sales and use taxes paid on specific items purchased, used, or installed at the enterprise project site.3 As of July 2015, the Program since its inception had accounted for 979 projects with 405,473 jobs (new and retained) and $74.1 billion in capital investment.4

Applications are accepted quarterly with the deadlines on the first working day of March, June, September, and December. Enterprise project designation is for a period of up to five years. Employment and capital investment commitments must be incurred and met within the period starting 90 days before the application date through the designation expiration date.

Projects may be physically located inside or outside of an enterprise zone. If located within a zone, the company commits that 25 percent of new employees will meet economically disadvantaged, enterprise zone residency, or veteran requirements. If located outside of a zone, the company commits that 35 percent of new employees will meet economically disadvantaged, enterprise zone residency, or veteran requirements.5

Job positions must provide employment of at least 1,820 hours during a 12-month period. If an employee is terminated and replaced, the original employee plus the replacement employee must, when aggregated, meet the 1,820 hour requirement.6 In retained jobs designations, the 25 percent or 35 percent targeted employee requirements apply to any replacement employee filling those "retained" jobs. Job positions must exist through the end of the designation period, or at least three years after the date on which a state benefit is received, whichever is later.7

1 Texas Enterprise Zone Overview, https://texaswideopenforbusiness.com/services/tax-incentives.

2 Frequently asked questions, https://texaswideopenforbusiness.com/services/tax-incentives.

3 Id.

4 https://texaswideopenforbusiness.com/sites/default/files/enterprisezone.pdf.

5 Id. Note that veteran inclusion in the 25 percent or 35 percent new employee threshold was effective September 1, 2015.

6 https://www.comptroller.texas.gov/taxes/audit/docs/enterprise-manual.pdf.

7 Frequently asked questions, https://texaswideopenforbusiness.com/services/tax-incentives.

​More from "Credits & Incentives talk with Deloitte"

For more information regarding tax credits and incentives, contact: 

Kevin Potter, director, Deloitte Tax LLP, New York, +1 212 492 3630

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