Texas sponsors one of the most progressive job retention incentive programs in the United States. The Texas Enterprise Zone (EZ) Program provides a sales and use tax rebate on the state portion of Texas’ sales and use tax (6.25%) for taxpayers making capital investment and retaining employees. The rebate does not extend to the local portion of the sales and use tax. The rebate is $2,500 per employee for capital investment of $40,000 or more, but less than $150 million. The rebate can be $5,000 or $7,500 per employee for larger projects. Ironically, a taxpayer need not be in an EZ to qualify as long as the company meets certain hiring requirements for new employees.
In order to take advantage of the program, the taxpayer must receive the nomination of his city or county, and complete an application that is submitted to the Governor. Application deadlines under the program fall quarterly on 3/1, 6/1, 9/1 and 12/1, but given the involvement of local government, planning for taking a benefit under the program should begin three to six months before the application deadline.
The retention benefit of the Texas EZ program requires the taxpayer to maintain its existing headcount 90 business days before the quarterly application deadline (significantly longer than 90 calendar days). However, the retained employees do not need to meet any specific hiring requirements. Employees hired to replace retained employees must meet certain percentage hiring requirements. For taxpayers in an EZ, 25% of replacement hires must be either EZ residents or meet certain economically disadvantaged criteria. For taxpayers not located in an EZ, 35% of replacement hires must meet this residency or economically disadvantaged criteria.
This program has been taken advantage of by many large concerns in Texas, including Deloitte, Anheuser-Busch and NRG.
Mark Scimemi, J.D.
About the author: Mark Scimemi is a Tax Senior Manager in State and Local Tax at PKF Texas. Business incentives advisory services to large and small companies is an important part of his practice.