HBA-JLV H.B. 2686 77(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 2686
By: Solis, Jim
Economic Development
3/20/2001
Introduced



BACKGROUND AND PURPOSE 

The Texas Enterprise Zone Program was created to generate capital
investment and job creation in economically distressed areas of Texas by
providing communities with an economic development tool to offer state and
local incentives and program priority to new or expanding businesses in
these designated areas.  An essential function of this program is to create
partnerships for promotion of business expansion and revitalization of
these areas.  The Defense Economic Readjustment Zone Program was
established to assist adversely impacted defense-dependent communities in
responding to or recovering from defense closures or realignments of
defense installations, or reductions or termination of defense contracts.
House Bill 2686 makes substantive changes to the Texas Enterprise Zone
Program and Defense Economic Readjustment Zone Program and provides for
increased incentives for certain businesses located in an enterprise zone,
federal empowerment zone, or federal enterprise community. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

ANALYSIS

House Bill 2686 amends the Government, Tax, and Labor codes to provide tax
incentives for certain businesses located in enterprise zones, defense
readjustment zones, or certain federally designated zones.  
The bill decreases the ceiling on the number of jobs the Texas Department
of Economic Development (department) may include in the computation of an
enterprise project tax refund from 625 to 250 jobs (Sec. 2303.407,
Government Code).  The bill provides that an enterprise project is entitled
to a franchise tax credit (Sec. 2303.504, Government Code).  The bill
authorizes the department to monitor a qualified business, enterprise
project, or defense readjustment  project to determine whether and to what
extent the business or project has followed through on any commitments and
to determine that the qualified business, enterprise project, or defense
readjustment project is not entitled to a refund or credit of state taxes
(Secs. 2303.516 and 2310.413, Government Code). 

The bill increases from $2,000 to $4,000 the maximum amount of the refund
allowed for wages paid to an employee receiving financial assistance (Sec.
303.103, Labor Code).  The bill adds an additional eligibility requirement
for a person to be eligible for the refund of wages, to provide that a
person perform at least 50 percent of the employee's services for the
person in an enterprise zone, federal empowerment zone, or federal
enterprise community  (Secs. 301.104 and 301.105, Labor Code).   

The bill provides that an enterprise project or defense readjustment
project  is eligible for a refund of certain taxes imposed on purchases of
tangible personal property purchased and consumed in the normal course of
business in the enterprise zone or defense readjustment zone and taxable
services.  The bill increases the maximum tax refund that enterprise
projects qualify for, from $2,000 to $5,000, for each new permanent job or
job that has been retained by the enterprise projects for a qualified
employee (Sec. 151.429 and 151.4291, Tax Code).   
 
The bill authorizes a corporation to claim a credit or take a carryforward
credit without regard to whether the strategic investment area, enterprise
zone, or defense readjustment zone in which it made qualified research
expenses and basic research payments or created qualifying jobs
subsequently loses its designation as a strategic investment area,
enterprise zone, or defense readjustment area (Secs. 171.722 and 171.752,
Tax Code).  The bill also authorizes a corporation that is an enterprise
project or defense readjustment project to multiply by two the amount of
any qualified research expenses and basic research payments made in an
enterprise zone or a readjustment zone in computing a tax credit for
research and development activities.  The bill prohibits a corporation from
multiplying expenses and payments more than once for such a credit (Sec.
171.723, Tax Code). 

The bill authorizes a corporation that has been designated as an enterprise
project or as a defense readjustment project to claim the entire credit for
job creation or capital investments earned during an accounting period
against the taxes imposed for the corresponding reporting period (Sec.
171.754 and 171.804, Tax Code).   

EFFECTIVE DATE

September 1, 2001.  Provisions relating to the Tax Code take effect January
1, 2002.