Texas extends Chapter 312 Property Tax Abatement Program

Eversheds Sutherland (US) LLPTexas Governor Greg Abbott signed HB 3143 into law, extending the Texas Chapter 312 property tax abatement program for a period of 10 years. In addition to extending the program, the bill also provides for increased transparency and other additional requirements related to the Chapter 312 abatement program. Extension of the program will allow taxpayers engaged in renewable energy and other development projects across Texas to continue to benefit from this property tax abatement program.

Background: Chapter 312 Property Tax Abatement Program

Chapter 312 of the Texas Tax Code permits local taxing units to enter into agreements with property owners providing for the abatement of ad valorem property taxes, provided that the property owner makes specified improvements or repairs to the property. These agreements are entered into between a property owner and a local county, city, special taxing district or other authority such as a water district or a hospital district. The state law authorizes and establishes certain guidelines for the abatement agreements, with the precise terms of the abatements negotiated and agreed to by the local taxing authority and the taxpayer. Any agreement must be approved by a vote of the members of the governing body of the local taxing unit.

School districts, whose ad valorem property tax rates are typically greater than those of the other local taxing units, are prohibited from entering into abatement agreements under Chapter 312. However, Chapter 313 of the Texas Tax Code provides for a similar incentive with respect to ad valorem taxes levied by local school districts. Unlike Chapter 312, which provides for the abatement of property taxes, Chapter 313 allows school districts and property owners to enter agreements to limit the appraised value of property for ad valorem property tax purposes. Chapter 313 is currently set to expire on December 31, 2022. The legislature did not act to extend the Chapter 313 program during this year’s legislative session.

Changes Effected by HB 3143

First, and most importantly, HB 3143 extends the life of the Chapter 312 abatement program until September 1, 2029. The term of an abatement agreement is limited to a maximum of 10 years by the statute, so even if the program is not extended again, property owners who execute agreements before the potential expiration of the program could potentially still benefit from the abatement program for a number of years past this expiration date.

Second, HB 3143 adds requirements regarding public hearing and notice periods. Specifically, the bill provides that notice of a public meeting where approval of an abatement agreement will be considered must be published at least 30 days before the scheduled meeting date. Additionally, the bill adds a requirement that the public notice must contain the following information: the name of the property owner and the applicant for the agreement, the name and location of the reinvestment zone in which the property is located, a description of the nature of the improvements or repairs covered by the proposed agreement, and the estimated cost of the improvements or repairs. These requirements apply to tax abatement agreements entered into on or after September 1, 2019.

Third, the bill adds a requirement for a public hearing at which members of the public are given the opportunity to be heard—before the adoption, amendment, repeal, or reauthorization of the guidelines—and criteria regarding abatement agreements of a taxing unit. This requirement applies only to the adoption, amendment, repeal, or reauthorization of guidelines and criteria on or after September 1, 2019. In addition, a requirement is added for each taxing unit that maintains a website to post a current version of the guidelines and criteria to its website.

Finally, the bill imposes a requirement for the chief appraiser of a taxing district to deliver a report to the comptroller for each of the three years immediately following the expiration of an abatement agreement, showing the appraised value of the property that was subject to the agreement. These reports will provide verification as to the benefits of the program arising from increased property values resulting from the developments that have been granted an abatement. This requirement is effective only for those agreements that expire on or after September 1, 2019.

Eversheds Sutherland Observation: Tax abatement agreements have been offered by local taxing jurisdictions across Texas to taxpayers in a wide range of industries and for diverse types of projects, including renewable energy projects. Taxpayers in the process of applying for a Chapter 312 tax abatement in Texas should be mindful of the September 1st effective date for the new requirements of this program as well as the potential impact on the application process resulting from the new 30-day notice requirement for public hearings regarding the approval of abatement agreements. Additionally, the new transparency requirements, including the requirement for taxing units to publish their guidelines and criteria on their websites, should provide increased guidance for taxpayers considering applying for abatement agreements.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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