Incentive Reform: The Texas Enterprise Zone Program

Effective September 1, 2015, several significant amendments have been made to the Texas Enterprise Zone (EZ) Program.1 These amendments affect eligibility requirements, the application process, and the potential benefit of the EZ Program to qualifying businesses.

Overview

The EZ Program provides an incentive to companies investing in qualifying capital and hiring qualified employees over a five-year designation period.2 Qualifying companies may be eligible for refunds of state sales and use taxes ranging from $2,500 - $7,500 per employee, depending upon the size and scope of the qualifying project.

Application Process

Qualifying companies must submit an application to the state and be nominated by a local unit of government.3 As part of the application process, candidates must obtain local nomination to the EZ Program in order to have a valid application. The nominating local jurisdiction may either be the city or county in which the qualified business has activity. Local jurisdictions have a limited number of applications they can nominate per biennium. Historically, both counties and municipalities have been able to nominate projects at will and independently without notifying other counties and municipalities of their nominations. However, a county may only nominate three or less projects located in a city.4

Hiring Commitment

The EZ Program was specifically designed to encourage capital investment and hiring of employees who are economically disadvantaged or residents of EZs.5 Areas designated as EZs generally are economically distressed areas determined by poverty level, or certain federally designated development zones.6 Because it is common for business locations outside an EZ to hire employees residing in a nearby EZ, the EZ Program is open to eligible businesses anywhere in Texas regardless of whether the business facility is located within an EZ. However, being located within or outside of an EZ determines the applicant's hiring commitment during the designation period. To be considered a qualified business, projects within an EZ must meet a hiring commitment of at least 25 percent of new or replacement employees who are economically disadvantaged or reside in an EZ.7 Projects outside of an EZ must commit to a 35 percent hiring commitment.8

Qualifying Capital Investments, Employees and Jobs

Qualifying capital investment is defined as purchases of capital or fixed assets to be used in the regular course of business at the applying...

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