Texas Rising - Fall 2011

Tax Freedom in Conroe

by Clint Shields

It’s just another hot morning in late summer 2011 and Tom Stinson, director of the Greater Conroe Economic Development Council, is about to go on a site visit to meet with representatives from a company considering moving its operation to the Conroe area.

The move would create about $120 million in capital investment in Conroe.

“Something like that would be a big deal,” Stinson says, adding that interest in the area has blossomed. “It’s been anything but quiet around here.”

Texas’ overall business climate is already attractive to companies considering a move. But locally, Conroe employs a freeport tax exemption to help. Freeport exempts certain tangible personal property types from ad valorem taxation provided that the property is:

  • acquired in or imported into Texas to be forwarded out of state;
  • held in Texas for assembling, storing, manufacturing, processing or fabricating purposes by the person who acquired or imported it; and
  • transported out of state within 175 days after the date it was acquired or imported into Texas.

“Texas is a state that taxes inventory, and that’s an important consideration for many manufacturers,” Stinson says. “Prior to five or six years ago, the hospital district and [Montgomery] County offered freeport, but the school district and the city of Conroe did not.”

The Conroe Independent School District and the city have since adopted the exemption. When a taxing entity adopts the exemption, it applies throughout the entity’s entire jurisdiction. The more territory that falls under the exemption, the more attractive the incentive is for interested companies.

Ten Conroe companies currently benefiting from local economic development have paid $87 million in local taxes over a 10-year period; they’ve also added about $290 million in capital investment and created approximately 1,900 jobs. The freeport exemption is used by eight of those 10 companies.

Conroe’s close proximity to Houston and international shipping lanes is another plus for businesses looking to move products out of the state. Bauer Manufacturing, which produces drilling rigs for customers around the world, occupies 80 acres and employs 40 people in Conroe. The location and freeport exemption are both big pluses for Bauer.

“The freeport exemption has helped Bauer Manufacturing improve our bottom line by legally reducing our annual inventory tax liability,” says Tom Jarboe, Bauer’s chief executive officer. “Because some Texas taxing districts do not allow the freeport exemption, it was a big factor in our decision to establish our business in Montgomery County.”

“The freeport exemption certainly highlights the package we can present to companies that are considering moving to the area,” Stinson says. “It’s been a very successful tool for us.”

The History of Freeport

The freeport exemption can help local governments and taxing entities draw businesses from other areas and states that do not offer tax incentives. Enacted in 1989, the exemption affects various types of property that are held in Texas for 175 days or less and are designated for shipment outside of the state. Assembly, storage, manufacturing and processing are among the reasons why the property is in Texas before being sent out of the state.

Interest in freeport and its use have grown in recent years. In 1999, only 85 Texas school districts granted the exemption. By 2010, 165 districts enacted the exemption, and more than 5,200 exemptions were granted among Texas taxing entities. The exemptions removed more than $23 billion from local taxing units appraisal rolls statewide. TR

Save the Date, Keep the Exemption

April 30 is an annual red-letter date for the freeport tax exemption. Companies requesting the exemption must file the completed exemption application between January 1 and April 30 in the year the exemption is requested. Despite the exemption’s benefits, not all businesses take advantage of it.

“I have found that a lot of Texas businesses that sell their products outside of Texas are not familiar with the law,” says Tom Jarboe, chief executive officer of Bauer Manufacturing. “I urge every Texas business to check with their CPA to see if the freeport exemption will apply to their operation.”

More on the Freeport program »