Partnering for Impact

Chapter 380 Agreements Offer Sales Tax Incentives for Commercial and Retail Projects

Built in 1896 by architect J. Riely Gordon, the Gonzales County Courthouse exemplifies Romanesque Revival style. It was constructed of red brick and concrete blocks for $64,450. The structure is in the form of a Greek cross and features arches, turrets, balconies and a clock tower. The building was added to the National Register of Historic Places in 1972. For more information, contact the Gonzales Chamber of Commerce and Agriculture at (830) 672-6532.

The Comptroller’s office empowers local governments and communities with the information and tools they need to encourage, create and support economic development and jobs for Texans. Look for our special “Partnering for Impact” section each month, featuring timely, important information, news and tips for local governments and economic development corporations.

A number of Texas cities have used sales tax incentives authorized under Chapter 380 of the Local Government Code to develop commercial and retail projects. These Chapter 380 Agreements allow a city to attract development by refunding a portion of the sales tax the project generates back to the developer under a long-term contract. These agreements are win-win for the developer and the city. The developer receives assistance to make the project viable, and the city benefits from growth in sales tax revenue, property taxes and new jobs.

Communities should consider the following guidelines concerning Chapter 380 Agreements:

Cities should place a limit on both the percentage of sales tax granted to the developer and the total amount of the grant. For example, the grant could be limited to a portion of the sales tax generated by the development, up to $1 million.
The agreement should have a termination date depending in part on the developer’s total investment.
Milestones and deadlines should be included in the agreement to ensure that the developer completes the project according to the city’s expectations. The city should include terms by which the developer could be considered out of compliance or in default of the agreement – and consider possible penalties such as reductions in the sales tax incentive.
The city should consider including terms in the contract to remedy adverse impacts caused by the development, such as increased traffic and increased demand for law enforcement and utilities.
Payment of grants under the agreement should be based on the net sales tax allocation, after adjustments and fees, and not due to the developer until the city receives the funds from the Comptroller.

These guidelines can help communities tap the benefits of Chapter 380 Agreements and avoid buyers’ remorse. For more information, visit the Comptroller’s Local Government Assistance Web site or call (800) 531-5441, ext. 3-4679.