WHAT ARE THESE TAXES?
Voters in many Texas cities have the option of imposing a local sales and use tax to help finance their communities’ economic development efforts.
These cities may adopt an economic development sales tax rate of 1/8, 1/4, 3/8 or 1/2 of 1 percent if the new total rate of all local sales and use taxes would not exceed 2 percent. They also may limit the duration of the tax and the use of the funds.
WHO IS ELIGIBLE?
Type A Sales Tax
All cities located in a county with a population of less than 500,000 may impose the tax under Type A if the new combined local sales tax rate would not exceed 2 percent.
Type B Sales Tax
As of 2001, all cities are eligible to adopt the Type B tax if the combined local sales tax rate would not exceed 2 percent.
HOW IS THE TAX ADMINISTERED?
Under both Type A and Type B, the Development Corporation Act has a unique provision that requires cities to establish a corporation to administer the sales and use tax funds.
The corporation must file articles of incorporation with the Secretary of State. The articles of incorporation must state that the corporation is governed under Vernon’s Ann.Civ.St. art. 5190.6, Type A or art. 5190.6, Type B of the Development Corporation Act of 1979.
Board of Directors
The composition of the corporation’s board of directors and the length of a member’s term differ between Type A and Type B.
Under Type A: The city’s governing body must appoint a five-member board. Each member is appointed to a term not to exceed six years.
Under Type B: The city’s governing body must appoint seven directors. Three of the seven directors cannot be employees, officers or members of the city’s governing body. The other four directors may be – but are not required to be – members of the governing body or city employees. All directors are appointed to a two-year term under Type B.
The directors of a corporation authorized under Type B must be residents of the city authorizing the sales tax if the city’s population is 20,000 or more. There is no city residency requirement for Type B directors in cities with fewer than 20,000 population as long as the director is a resident of the county in which the majority of the city is located, or resides within 10 miles of the city and is in a county which borders the county in which a majority of the city is located.
The board of directors authorized under Type A and Type B serves at the pleasure of the governing body and must conduct meetings within the city’s boundaries.
A corporation’s registered agent must be a Texas resident, and the corporation’s registered office must be within the city’s boundaries.
HOW CAN TAX REVENUE BE USED?
Type A Sales Tax
The tax is primarily intended for manufacturing and industrial development, and cities may use the money raised by this sales tax to acquire land, buildings, equipment, facilities, expenditures, targeted infrastructure and improvements for purposes related to:
- manufacturing and industrial facilities, recycling facilities, distribution centers, small warehouse facilities;
- research and development facilities, regional or national corporate headquarters facilities, primary job training facilities for use by institutions of higher education, job training classes;
- a general aviation business service airport that is an integral part of an industrial park;
- certain infrastructure improvements, which promote or develop new or expanded business enterprises;
- port-related facilities to support waterborne commerce; and
- maintenance and operating costs associated with projects.
After a public hearing and voter approval, Type A corporations may use their revenue to undertake projects eligible under Type B, without voting to abolish the Type A tax and impose the Type B tax. The law specifies the Type A corporation’s requirements for publishing notice of a proposed Type B project and the procedures for holding at least one public hearing on the proposed project before the election. The ballot must clearly describe the Type B projects that will be funded from the Type A tax.
Type A corporations may, following a separate election to gain voter approval, spend their Type A sales tax to clean up contaminated project sites.
A corporation created under Type A cannot assume, or pay principal or interest on, debts that existed before the city created the corporation.
Type B Sales Tax
The tax provides cities with a wider range of uses for the tax revenues because it is intended to give communities an opportunity to undertake a project for quality of life improvements, including economic development that will attract and retain primary employers.
Cities may use money raised by this sales tax for a wide variety of projects including land, buildings, equipment, facilities expenditures and improvements related to projects defined in Section 2 of the Act (same uses as authorized for Type A) or found by the board of directors to be required or suitable for use for:
- professional and amateur sports (including children’s sports) and athletic facilities; tourism and entertainment facilities; convention and public park purposes and events, (including stadiums, ballparks, auditoriums, amphitheaters, concert halls, parks and open space improvements, museums, exhibition facilities);
- related store, restaurant, concession, parking and transportation facilities;
- related street, water and sewer facilities; and
- affordable housing.
To promote and develop new and expanded business enterprises that create or retain primary jobs, a city may provide:
- public safety facilities;
- recycling facilities;
- streets and roads;
- drainage and related improvements;
- demolition of existing structures;
- general municipally owned improvements;
- maintenance and operating costs associated with projects; and
- any other project that the board determines will contribute to the promotion or development of new or expanded business enterprises that create or retain primary jobs.
Before spending Type B sales tax revenue, a corporation is required to hold at least one public hearing on the proposed project that will be funded by this tax.
Type B corporations may, following a separate election to gain voter approval, spend their Type B sales tax for a water supply, water conservation program or to clean up contaminated project sites.