Legal & Regulatory

A Renewable Benefit: Texas Extends Tax Abatement Program


Texas Governor Greg Abbott (R) signed a bill into law this legislative session that extends the state’s Chapter 312 property tax abatement program until Sept. 1, 2029. The program was set to expire at the start of this month.

The extension—House Bill (HB) 3143—brings a new transparency to the program for taxpayers. Renewable energy developers in Texas have leaned heavily on the Chapter 312 and Chapter 313 programs as they look to develop projects, and tax incentives available in Texas make it one of the friendliest states in the U.S. for renewable energy development. Property taxes are the main source of revenue for Texas cities and counties, as there is no state income tax, and property taxes can be one of the largest expenses for a greenfield project.

How the Tax Abatement Program Works

A tax abatement is a local agreement between a taxpayer and a taxing unit that exempts all or part of the increase in the value of the real property and/or tangible personal property from taxation for a period not to exceed 10 years. Chapter 312 of the Texas tax code created the ability for Texas jurisdictions to offer this incentive to developers. This program was started in 2001 because the state’s reliance on property taxes was making it difficult to lure in large developments where property taxes are one of the largest expenses.

Tony Trahan

These tax abatements are an economic development tool available to cities, counties, and special districts to attract new industries and to encourage the retention and development of existing businesses through property tax exemptions or reductions. The two programs differ in that they offer different tax incentives for different parts of the overall property tax pie in Texas. School districts may not enter into abatement agreements, but they are able to enter into Chapter 313 limitation agreements. A Chapter 313 School Value Limitation limits the amount of property tax paid within a certain independent school district (ISD).

Tax abatements may be short-lived, but can have a future impact, and developers of renewable energy projects have reaped significant benefits from the programs. A 2018 Texas comptroller report found that the Chapter 312 program will take about $255 billion off the property tax rolls from 2016 to 2027. The incentive programs have helped Texas increase its number of solar power projects, and the state leads the nation in developed wind power.

Because appraised value and taxable value are two different things, a facility could secure a Chapter 312 abatement, and also secure a Chapter 313 Limitation on the ISD portion of the tax, which limits the value that the property tax rate is multiplied by. As it stands, there are more than 200 active Chapter 313 agreements involving renewable energy developers.

How the 10-Year Extension Changes 312

HB 3143 adds 10 years to the life of the Chapter 312 program. It also adds new transparency rules, with requirements for public hearings and notice periods. Specifically, the bill states that before the governing body of a taxing unit may adopt, amend, repeal, or reauthorize guidelines and criteria, the body must hold a public hearing regarding the proposed adoption, amendment, repeal, or reauthorization, at which members of the public are given the opportunity to be heard.

An agreement being considered must be published at least 30 days before the scheduled meeting date. It must include the name of the owner, the name/location of the reinvestment zone where the property will be, the nature of the improvements or repairs covered by the proposed agreement, and the estimated cost of the improvements or repair. The bill also states that taxing units that have a website must post the current version of the guidelines of the tax abatement. All of these requirements above will apply to tax abatement agreements entered into on or after September 1 of this year.

HB 3143 also states that for the first three tax years after the abatement expiration, the chief appraiser must deliver to the comptroller a report containing the appraised value of the property that was the subject of the agreement. These requirements apply to tax abatement agreements entered into on or after Sept. 1, 2019.

The Chapter 312 abatement program is a hot topic in Texas among lawmakers and local officials, and the extension likely will continue to help deliver some of the nation’s largest renewable energy projects to the state. Next on the horizon? The future of the Chapter 313 program. That program is set to expire at the end of 2022.

Tony Trahan is a tax consultant and part of the business development team at KE Andrews, an asset valuation and property tax firm that works with Fortune 500 companies in the commercial real estate sector.

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