Michael W. Cook 2019 – 09/26 (Confirmed 2023 – 01/23)
Your Texas-based manufacturing team has been working for weeks on a huge order of electronic sensors for a security equipment wholesaler in California. Most of the order is now stacked on pallets ready to ship. A few last units are working their way through the assembly line as work in process.
It’s a high value order and you will eventually pay taxes on the profit it generates for your business, but must you also pay property tax on it while it sits in your warehouse as inventory? Maybe not, depending on how long the equipment stays in your possession, and whether you end up shipping it out of state.
The Freeport Exemption
The Freeport Exemption is a business personal property tax exemption on inventory that is in Texas for a short time – 175 days or less – and will be transported outside of the state.
This is not new legislation. In 1989, Texas voters approved a constitutional amendment to exempt “Freeport Goods” from property taxes. This valuable exemption was an effort to attract companies that hold substantial inventories to the state of Texas by offering them a significant tax break.
Qualifying for the exemption
The qualification process is quite specific and requires solid documentation. The primary components of the tax break are:
- The exemption applies to inventory including finished goods, supplies, raw materials and work in process. The exemption does not apply to oil, natural gas or gaseous materials that are derivatives of oil refining or natural gas.
- The goods must be in Texas for assembly, storage, manufacturing, repair, maintenance, processing, or fabrication.
- Eligible goods must be transported out of Texas within 175 days of when they were acquired, manufactured or brought into Texas.
- These goods must be located within tax jurisdictions that have elected to grant the Freeport Exemption in the preceding tax year.
You must submit the correct annual application with the appropriate appraisal district between January 1 and April 30. Because the scope of the exemption depends on the percentage of your inventory that met the exemption standards in the previous year, you must submit specific documentation for the preceding year, including sales reports, inventory reports, and financial statements. Each appraisal district has its own form and may require other financial information or have different methods of calculating the exemption percentage. Accurate recordkeeping is a must.
Not all jurisdictions participate
Not every taxing jurisdiction in Texas grants the Freeport Exemption. Since the city, county and school district in a given area are all separate taxing entities, they each elect separately whether to offer the exemption. You must contact the county appraisal district to determine which entities grant the exemption for your location.
You hit the jackpot if all three jurisdictions (county, city, school) allow the Freeport Exemption. This fortunate circumstance, known as the “Triple Freeport,” offers the maximal tax savings.
The benefit of professional guidance
The Texas Freeport Exemption is a great benefit for companies doing business in Texas. It serves its intended purpose of making it easier for businesses to operate and prosper in the state. Still, the filing requirements are rigorous and can be a distraction for business owners and managers.
We encourage you to work with a professional property tax consultant to ensure that appropriate documentation is collected, exemption calculations are completed properly and filing deadlines are met.
Bland Garvey, understanding this need, has a licensed property tax consultant on staff with over thirty years’ experience with an appraisal district and property tax filings in Texas. Exclusively focused on property tax filings and protests, our consultant assures all your property tax and exemption filings will be accurate and timely, ensuring the maximum tax savings prescribed by the Freeport Exemption.
Michael W. Cook
Property Tax Services
Bland Garvey, P.C.
2600 N. Central Expy., Suite 550
Richardson, TX 75080