Local Government Tools

Incentive Programs

8 - Freeport Exemption

8.1 Program Summary

YEAR ENACTED:

1989

LEGISLATIVE APPROPRIATION:

No specific appropriation

HISTORY:

A constitutional amendment adopted in 1989 authorizes a type of property tax exemption for items classified as “Freeport property” (Article VIII, Section 1-j). Tax Code Section 11.251 was adopted as the enabling law. Freeport property includes various types of property that are detained in Texas for a short period of time (175 days or less) to be transported out of Texas. The goods must be in Texas for certain purposes, such as assembly, storage, manufacturing, processing or fabrication. This exemption was proposed to enhance economic development.

The constitutional amendment was unusual from the standpoint that no action was necessary by taxing units that wanted to exempt Freeport property from taxation. The exemption was self-enacting unless the taxing units took specific action to tax the property. If a taxing unit decided to override the Freeport exemption and impose a local property tax, the governing bodies of the taxing units were required to take official actions to tax the property by April 1, 1990. Most taxing units took the necessary action at that time to be able to tax the Freeport goods.

A taxing unit may revoke its decision to tax the goods and choose to exempt them in order to promote economic development. Such a decision must be made by the governing body of the taxing unit by repealing the original resolution or ordinance to tax the Freeport property. If a taxing unit exempts Freeport property through the revocation, the exemption may not be repealed later. In other words, once the taxing unit chooses to exempt Freeport property, this type of property remains exempt from property taxation by that taxing unit forever.

The Freeport exemption, if adopted, applies throughout the local taxing entity’s jurisdiction. For example, if a taxing unit adopts the Freeport exemption, it applies throughout the entire taxing jurisdiction. A taxing unit may not choose to exempt Freeport property in only a portion of its territory.

Freeport goods include goods, wares, merchandise, ores, and certain aircraft and aircraft parts as defined under Article VIII, Section 1-j, Texas Constitution. It does not include oil, natural gas and other petroleum products. Petroleum products are defined as “liquid and gaseous materials that are the immediate derivatives of the refining of oil or natural gas.”

MEASUREMENT:

In 2003, 753 of 1033 school districts imposed taxes on Freeport goods. A school district may provide for Freeport property exemption and not have any exempt property reported on the Property Value Study (PVS). This could happen because no eligible property is in the school district that year or a company with eligible property may not apply for the exemption timely that year, which may explain a school district reporting Freeport value loss one year and not another.

PROGRAM COSTS/OUTLAYS/ALLOCATIONS

In Tax Year 2009, more than $23 billion in value was removed from local taxing units appraisal rolls statewide.101 Although the tax exemption is granted by the school district, the revenue losses are made up with state funds to the school district through the school finance system. The cost to the State would be the amount of general revenue that must be paid to school districts that lose money due to the exemption.

According to the PVS conducted annually by the Comptroller’s Property Tax Assistance Division until 2009, the following summary table shows the number of school districts, value loss and the total number of Freeport exemptions granted for the past 10 years from 1999 through 2009.

Table 26:

FREEPORT EXEMPTIONS AND ESTIMATED COST TO THE STATE (1999-2009)



Year Number of School Districts Total Freeport Exemption Taxable Dollar Value Loss Number of Freeport Exemptions Granted Weighted Average ISD M&O Tax Rates102 Estimated Cost to the State103
1999 85 $5,872,392,574 1,357 1.3849% $81,326,765
2000 95 $7,226,655,221 1,464 1.4187% $102,524,558
2001 106 $10,615,647,629 2,038 1.4388% $152,737,938
2002 113 $9,998,616,641 2,437 1.4632% $146,299,759
2003 121 $10,835,074,466 2,944 1.4740% $159,708,998
2004 131 $13,152,409,001 3,825 1.4749% $193,984,880
2005 143 $15,429,886,682 4,280 1.4797% $228,316,033
2006 152 $16,503,043,984 4,561 1.3410% $221,305,820
2007 158 $19,622,465,643 4,798 1.0321% $202,523,468
2008 159 $22,134,149,623 4,981 1.0416% $230,549,302
2009 165 $23,038,672,674 5,217 1.0432% $240,339,433

Source: Texas Comptroller of Public Accounts, Property Tax Assistance Division.

Maintenance and Operations (M&O) taxes generate revenue used to fund the daily needs of a school district including salaries, curriculum development, supplies, equipment, and building repairs. The rates listed in Table 26 refer to the tax rates per $100 of property valuation.

The estimated cost to the state is determined by multiplying the taxable dollar-value loss by the weighted average ISD M&O tax rates.

Based on the information provided in the table above, we divide the total taxable dollar value loss by the number of districts and number exemptions granted. That gives us the average loss per school district and the average loss per exemption listed in Table 27.

Table 27:

Year Average Taxable
Dollar Value Loss
per School District
Average Taxable
Dollar Value Loss
per Exemption
1999 $69,086,971 $4,327,482
2000 $76,070,055 $4,936,240
2001 $100,147,619 $5,208,856
2002 $88,483,333 $4,102,838
2003 $89,546,070 $3,680,392
2004 $100,400,069 $3,438,538
2005 $107,901,305 $3,605,114
2006 $108,572,658 $3,618,295
2007 $124,192,821 $4,089,718
2008 $139,208,488 $4,443,716
2009 $139,628,319 $4,416,077

Source: Texas Comptroller of Public Accounts, Local Government Assistance and Economic Development Division.

PROGRAM STRENGTHS:

  • The program was created by virtue of a constitutional amendment.
  • The exemption benefit is only granted if the stated economic activity(ies) take place.
  • It encourages warehousing within Texas versus the utilization of another stat.

PROGRAM WEAKNESSES:

  • The program is not appropriated in state budget.
  • The program does not track jobs or capital investments associated with the Freeport exemptions granted.
  • The oversight and monitoring responsibilities are largely within the purview of the County Appraisal District.
  • The Freeport designation approved by the school district but cost is made up by the state through school funding formula.

PROGRAM RECOMMENDATIONS:

Create Effectiveness Metrics. The Freeport exemption is the state’s largest economic development program in terms of total dollars. Since the program is administered and monitored at the local level, the state does not have sufficient information to evaluate the return on the taxable dollar value loss granted under the exemption. The Comptroller’s office recommends that the legislature evaluate the program, and develop metrics to determine its effectiveness.

8.2 FREEPORT EXEMPTION OBJECTIVES

Freeport Exemption Program:104

The objective of the Freeport Exemption is to encourage business activity through a local property tax exemption for tangible personal property (equipment, machinery, inventory, materials etc.) that is assembled, manufactured, repaired, maintained, processed, stored, or fabricated in Texas and transported out of Texas within 175 days.105

HOW ARE OBJECTIVES MEASURED?

The objective can be measured by the statewide property value attributable to the exemption, as determined by the county appraisal districts, since the inception of the program in 1989.

PROGRAM STATUS

A study of the businesses that benefit from the exemptions would have to be conducted to determine if business activity has been encouraged by the exemption.

8.3 FREEPORT EXEMPTIONS LIST

Table 28 displays the exemptions granted under the Freeport Exemption program for 2009.

Table 28:

County Name County Number School District Name School District Number Taxable Dollar Value Loss Exemptions Granted
Anderson 001 Palestine 001-907 $14,524,650 4
Anderson 001 Westwood 001-908 $10,072,574 5
Angelina 003 Zavalla 003-906 $627,210 1
Angelina 003 Diboll 003-905 $1,886,890 5
Angelina 003 Lufkin 003-903 $86,499,901 17
Archer 005 Archer City 005-901 $2,675,010 2
Bastrop 011 Smithville 011-904 $3,590 1
Bexar 015 Alamo Heights 015-901 $4,715,810 2
Bexar 015 Judson 015-916 $111,926,320 39
Bexar 015 San Antonio 015-907 $219,960,900 70
Brazoria 020 Brazosport 020-905 $316,475,497 31
Brazoria 020 Pearland 020-908 $65,342,016 32
Burnet 027 Burnet 027-903 $4,432,560 1
Burnet 027 Marble Falls 027-904 $4,130,430 8
Caldwell 028 Luling 028-903 $385,380 1
Cameron 031 La Feria 031-905 $5,383 1
Cameron 031 San Benito 031-912 $76,071,893 10
Cameron 031 Point Isabel 031-909 $23,405,672 15
Cameron 031 Harlingen 031-903 $36,416,104 32
Cameron 031 Brownsville 031-901 $150,815,444 68
Collin 043 Prosper 043-912 $73,287 1
Collin 043 Frisco 043-905 $24,848,302 7
Collin 043 Wylie 043-914 $39,478,281 11
Collin 043 Allen 043-901 $106,331,636 16
Collin 043 McKinney 043-907 $187,149,556 23
Collin 043 Plano 043-910 $363,414,754 82
Comal 046 Comal 046-902 $23,066,008 12
Dallas 057 De Soto 057-906 $1,892,705 1
Dallas 057 Sunnyvale 057-919 $80,385,585 7
Dallas 057 Cedar Hill 057-904 $8,800,221 12
Dallas 057 Lancaster 057-913 $24,424,619 13
Dallas 057 Mesquite 057-914 $64,049,434 34
Dallas 057 Duncanville 057-907 $98,523,551 40
Dallas 057 Grand Prairie 057-910 $349,454,415 48
Dallas 057 Richardson 057-916 $321,740,725 103
Dallas 057 Coppell 057-922 $491,059,802 113
Dallas 057 Garland 057-909 $376,368,300 114
Dallas 057 Carrollton-Farmers Branch 057-903 $927,212,494 186
Dallas 057 Dallas 057-905 $1,706,270,108 520
Delta 060 Cooper 060-902 $333,097 1
Denton 061 Argyle 061-910 $503,515 1
Denton 061 Denton 061-901 $195,850,282 29
Denton 061 Lewisville 061-902 $571,610,282 70
Denton 061 Northwest 061-911 $1,380,363,395 74
Ector 068 Ector County 068-901 $78,775,612 54
Ellis 070 Red Oak 070-911 $612,246 1
Ellis 070 Midlothian 070-908 $47,300,038 11
Ellis 070 Waxahachie 070-912 $71,701,579 20
El Paso 071 Fabens 071-903 $23,808,525 1
El Paso 071 Clint 071-901 $4,927,680 5
El Paso 071 Anthony 071-906 $14,186,485 7
El Paso 071 Canutillo 071-907 $82,423,611 22
El Paso 071 Socorro 071-909 $700,410,553 114
El Paso 071 El Paso 071-902 $285,253,087 131
El Paso 071 Ysleta 071-905 $444,634,573 160
Erath 072 Dublin 072-902 $1,535,298 1
Erath 072 Stephenville 072-903 $74,753,205 6
Foard 078 Crowell 078-901 $379,930 1
Fort Bend 079 Lamar Consolidated 079-901 $10,132,450 12
Fort Bend 079 Fort Bend 079-907 $384,317,930 36
Fort Bend 079 Stafford 079-910 $196,348,340 42
Galveston 084 Santa Fe 084-909 $20,698 1
Grayson 091 Howe 091-905 $679,418 1
Grayson 091 Whitesboro 091-909 $801,725 1
Grayson 091 Sadler-Southmayd 091-914 $358,803 2
Grayson 091 Van Alstyne 091-908 $583,007 2
Grayson 091 Pottsboro 091-913 $48,410,243 3
Grayson 091 Denison 091-903 $24,730,949 8
Grayson 091 Sherman 091-906 $82,395,345 22
Gregg 092 Kilgore 092-902 $72,678,530 25
Guadalupe 094 Navarro 094-903 $944,050 1
Guadalupe 094 Seguin 094-901 $23,119,016 8
Guadalupe 094 Schertz-Cibolo-Universal City 094-902 $46,528,347 13
Harris 101 Humble 101-913 $24,274,892 12
Harris 101 Spring 101-919 $74,810,298 21
Harris 101 Alief 101-903 $67,520,356 26
Harris 101 Klein 101-915 $319,972,326 39
Harris 101 Deer Park 101-908 $607,582,725 116
Harris 101 Aldine 101-902 $1,177,898,809 163
Harris 101 La Porte 101-916 $803,529,883 286
Harris 101 Cypress-Fairbanks 101-907 $2,137,600,902 430
Harrison 102 Marshall 102-902 $71,575,283 27
Hidalgo 108 Mission 108-908 $4,708,371 3
Hidalgo 108 Edinburg 108-904 $6,110,955 6
Hidalgo 108 Hidalgo 108-905 $65,896,273 23
Hidalgo 108 Sharyland 108-911 $183,841,241 33
Hidalgo 108 McAllen 108-906 $44,333,393 43
Hill 109 Hillsboro 109-904 $1,263,610 4
Hood 111 Granbury 111-901 $5,763,903 5
Hutchinson 117 Borger 117-901 $14,169,140 10
Jasper 121 Evadale 121-906 $12,798,969 1
Johnson 126 Alvarado 126-901 $47,166,841 6
Kaufman 129 Terrell 129-906 $93,332,142 21
Kendall 130 Boerne 130-901 $18,621,410 4
Kerr 133 Kerrville 133-903 $92,220 1
Lamar 139 Chisum 139-905 $50,206,093 8
Lamar 139 North Lamar 139-911 $54,976,626 8
Lamar 139 Paris 139-909 $25,071,587 13
Lipscomb 148 Booker 148-901 $421,515 1
Lubbock 152 New Deal 152-902 $23,235,237 4
Marion 158 Jefferson 155-901 $526,040 1
Maverick 162 Eagle Pass 159-901 $88,556,290 15
McLennan 155 Bosqueville 161-923 $13,525,695 5
McLennan 155 La Vega 161-906 $2,642,294 5
McLennan 155 McGregor 161-909 $15,760,606 6
McLennan 155 Waco 161-914 $56,856,775 28
Milam 166 Rockdale 166-904 $19,916,475 4
Montgomery 170 Montgomery 170-903 $13,866,384 5
Montgomery 170 Conroe 170-902 $253,032,275 71
Moore 171 Dumas 171-901 $26,354,680 3
Nacogdoches 174 Nacogdoches 174-904 $27,077,460 14
Nueces 178 Agua Dulce 178-901 $9,456,810 1
Nueces 178 Robstown 178-909 $5,399,229 3
Nueces 178 West Oso 178-915 $20,066,907 6
Orange 181 West Orange-Cove 181-906 $170,311,470 23
Parker 184 Garner 184-911 $11,183,460 2
Parker 184 Aledo 184-907 $25,592 2
Parker 184 Weatherford 184-903 $16,830,709 7
Potter 188 Bushland 188-904 $15,360,837 5
Potter 188 Canyon 191-901 $52,026,024 13
Potter 188 Highland Park 188-903 $134,875,570 28
Potter 188 Amarillo 188-901 $75,324,908 39
Red River 194 Clarksville 194-904 $13,071,360 7
Rockwall 199 Royse City 199-902 $3,009,958 4
Rockwall 199 Rockwall 199-901 $25,091,542 14
Runnels 200 Ballinger 200-901 $9,783,549 2
Runnels 200 Winters 200-904 $8,646,018 4
Rusk 201 Henderson 201-902 $4,991,320 8
San Patricio 205 Ingleside 205-903 $24,156,640 3
Smith 212 Arp 212-901 $25,087 1
Smith 212 Lindale 212-903 $7,269,295 3
Smith 212 Troup 212-904 $8,173,982 4
Smith 212 Winona 212-910 $8,092,456 7
Smith 212 Chapel Hill 212-909 $4,127,962 8
Smith 212 Whitehouse 212-906 $59,020,118 10
Smith 212 Tyler 212-905 $210,954,451 37
Tarrant 220 Crowley 220-912 $26,142,607 4
Tarrant 220 Keller 220-907 $9,389,161 6
Tarrant 220 Everman 220-904 $63,674,885 20
Tarrant 220 Mansfield 220-908 $220,633,983 47
Tarrant 220 Birdville 220-902 $113,938,323 49
Tarrant 220 Hurst-Euless-Bedford 220-916 $135,628,783 49
Tarrant 220 Grapevine-Colleyville 220-906 $1,170,857,789 63
Tarrant 220 Eagle Mountain-Saginaw 220-918 $338,164,838 67
Tarrant 220 Fort Worth 220-905 $868,420,312 192
Tarrant 220 Arlington 220-901 $745,904,785 274
Taylor 221 Abilene 221-901 $31,367,219 13
Tom Green 226 San Angelo 226-903 $11,958,663 8
Travis 227 Eanes 227-909 $976,205 1
Travis 227 Austin 227-901 $246,934 4
Travis 227 Pflugerville 227-904 $268,656,919 14
Travis 227 Manor 227-907 $221,693,387 59
Uvalde 232 Uvalde 232-903 $966,519 1
Val Verde 233 San Felipe-Del Rio 233-901 $32,535,172 15
Walker 236 New Waverly 236-901 $378,374 1
Walker 236 Huntsville 236-902 $58,736,015 4
Waller 236 Waller 237-904 $13,877,196 7
Wichita 243 Iowa Park 243-903 $14,453,411 1
Wichita 243 City View 243-906 $6,549,236 3
Wichita 243 Burkburnett 243-901 $51,330,989 5
Wichita 243 Wichita Falls 243-905 $52,585,250 16
Williamson 246 Florence 246-902 $92,138 1
Wise 249 Chico 249-904 $157,620 1
Wise 249 Decatur 249-905 $28,329,432 3
Young 252 Graham 252-901 $2,532,440 3
TOTALS 165 Districts $23,038,672,674 5,217

Map 8.4

8.4 – Freeport Exemptions

The Freeport exemption is by far Texas’ largest economic development incentive program in terms of total dollars. This map shows it is most heavily utilized in the state’s most populated areas.

Freeport exemptions

The counties with 1 exemption are:

  • Bastrop
  • Caldwell
  • Delta
  • Foard
  • Galveston
  • Jasper
  • Kerr
  • Lipscomb
  • Marion
  • Uvalde
  • Williamson

The counties with 2 through 10 exemptions are:

  • Anderson
  • Archer
  • Burnet
  • Erath
  • Hill
  • Hood
  • Hutchinson
  • Johnson
  • Kendall
  • Lubbock
  • Milam
  • Moore
  • Nueces
  • Red River
  • Runnels
  • Rusk
  • San Patricio
  • Tom Green
  • Wise
  • Young

The counties with 11 through 100 exemptions are:

  • Angelina
  • Brazoria
  • Comal
  • Ector
  • Ellis
  • Fort Bend
  • Grayson
  • Gregg
  • Guadalupe
  • Harrison
  • Kaufman
  • Lamar
  • Maverick
  • McLennan
  • Montgomery
  • Nacogdoches
  • Orange
  • Parker
  • Potter
  • Rockwall
  • Smith
  • Taylor
  • Travis
  • Val Verde
  • Walker
  • Wichita

The counties with 100 through 1500 exemptions are:

  • Bexar
  • Cameron
  • Collin
  • Dallas
  • Denton
  • El Paso
  • Harris
  • Hidalgo
  • Tarrant