LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
April 17, 2001
TO: Honorable Jim Solis, Chair, House Committee on Economic
Development
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB2686 by Solis, Jim (Relating to tax incentives for
certain businesses located in enterprise zones, defense
readjustment zones, or certain federally designated
zones.), Committee Report 1st House, Substituted
**************************************************************************
* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB2686, Committee Report 1st House, Substituted: negative impact *
* of $(1,384,500) through the biennium ending August 31, 2003. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
**************************************************************************
General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $(148,500) *
* 2003 (1,236,000) *
* 2004 (2,550,000) *
* 2005 (3,881,000) *
* 2006 (3,632,000) *
****************************************************
All Funds, Five-Year Impact:
*****************************************************
* Fiscal Year Probable Savings/(Cost) from *
* General Revenue Fund *
* 0001 *
* 2002 $(148,500) *
* 2003 (1,236,000) *
* 2004 (2,550,000) *
* 2005 (3,881,000) *
* 2006 (3,632,000) *
*****************************************************
Fiscal Analysis
The bill would amend the Government Code, the Labor Code, and the Tax
Code to make changes to certain tax incentives provided for businesses
located in enterprise zones, defense readjustment zones, or in some
federally-designated areas.
The bill would amend the Government Code by reducing the number of
employees eligible for the tax incentive to 250, from the current maximum
of 625. The bill would amend Chapter 151 of the Tax Code to expand the
basis for a sales tax refund to include business supplies and taxable
services. The amount of qualified refund per job would be raised to
$5,000 from $2,000 per job. The bill would amend the Government Code to
allow the Texas Department of Economic Development (TDED) to monitor
businesses and enterprise projects. TDED could disqualify those found
not cooperating or failing to follow through on commitments from
receiving tax refunds.
The bill would amend the Labor Code to add a definition of "enterprise
zone." The maximum amount of tax refund an employer could receive for
wages paid to an employee who received financial assistance would be
specified and the employee would have to perform at least 50 percent of
the employee's services in an enterprise zone, federal empowerment zone,
or federal enterprise community.
The bill would amend Section 171.751 by adding enterprise zones and
readjustment zones to the areas eligible for the franchise tax credit for
job creation. Within an enterprise or readjustment zone, the bill would
limit credit availability to businesses that had been designated as an
enterprise project or defense readjustment project. The bill would
exempt jobs created by an enterprise or readjustment project from certain
requirements in the Tax Code. According to the Comptroller's Office, an
enterprise or readjustment project earning a tax credit for job creation
could, subject to the project's total franchise tax liability, claim the
entire credit for the accounting period in which the credit was earned.
The bill would amend Section 171.752(b) to allow job creation credits
earned in an enterprise or readjustment zone to be carried forward after
the zone lost its designation. The bill would amend Section 171.801 by
adding enterprise zones and defense readjustment zones to the areas
eligible for the capital investment franchise tax credit. The bill would
amend Section 171.802(c) to allow capital investment credits earned in
an enterprise zone or readjustment zone to be carried forward after the
zone lost its designation.
This bill would take effect September 1, 2001, except for the provisions
affecting the franchise tax. The franchise tax provisions would take
effect January 1, 2002 and apply to a report originally due on or after
that date.
Methodology
The Comptroller's Office estimated the fiscal impact of this bill in
three areas. The first area was the increase in sales tax refunds that
would become available to enterprise projects. Information on current
refunds and the number of projects was used to develop an estimate of the
additional refunds of sales tax that would be made to projects.
The second area is the tax refund for wages paid to persons on financial
assistance. The maximum refund amount would be increased to $4,000 from
$2,000 per job. The bill would require that at least half of an
employee's services be performed in an enterprise zone, federal
empowerment zone, or federal enterprise community. The estimate is based
on the number of jobs currently receiving a refund and the number that
would qualify under the bill's provisions.
The third area is the impact of the franchise tax credits that would be
made available to enterprise projects, and the bill's provision that
would repeal the deduction from taxable capital and taxable earned
surplus allowed under current law. The estimate was based on U.S. and
Texas data for research and development and on investment and jobs data
at enterprise projects obtained from the Texas Department of Economic
Development
Local Government Impact
No significant fiscal implication to units of local government is
anticipated.
Source Agencies: 480 Department of Economic Development, 304
Comptroller of Public Accounts
LBB Staff: JK, JO, RT, ER