Texas Freeport Tax Exemptions When Leasing Warehouse Space

texas freeport tax exemptions austin warehouse spaceIf you are renting warehouse space in Austin Texas or the surrounding areas then you might want to see if you're eligible for the Texas Freeport Tax Exemptions. In a nutshell it's an ad valorem tax exemption offered by participating communities on business inventory that is in Texas for a short period of time (typically 175 days or less) AND that will be transported out of Texas. Many jurisdictions (cities, counties, and school districts) offer these incentives from time to time to help attract companies to Texas.

What criteria must be met to qualify for the Freeport Tax Exemption?

  • According to section 11.251 of the Tax Code if you detain freeport property for 175 days or less for the purpose of manufacturing, storage, assembly, fabricating, and processing then you are eligible to apply. 
  • The property must consist of goods, merchandise, supplies, raw materials, wares, ores, and aircraft or repair parts used by a certificated air carrier. It does not apply to oil, gas, petroleum products,, or other liquid and gaseous materials derived from the latter.
  • The property must leave Texas within 175 days from the date they are transported into or acquired in the state.

How do I apply for the Texas Freeport Exemption?

Not every business will be eligible however you never know until you ask. You will find the application to apply for the Texas Freeport Exemption on the Texas Comptroller's website. You may also have to file an annual application with the county appraisal district. Check with your local Austin chamber of commerce for franchise tax exemptions & credits.

On the application they will ask for details about your company and goods. You will typically need to provide inventory reports, sales reports, financial statements, etc.

How much can I save on Taxes with the Freeport Exemption?

It depends on the percentage of goods that you transported outside of Texas the year prior. For example if you had an inventory value of $4,000,000 and shipped 70% of the inventory outside of Texas the previous year you would receive a $2,800,000 exemption from each jurisdiction that offers the Freeport Exemption. Your taxable inventory would only be $1,200,000. At a tax rate of 2.5% that would equate to about $70,000 in savings!

Does every city or county offer the Freeport Exemption?

No. The major jurisdictions (city, county, and school districts) are all separate taxing entities which means they each have to approve the exemption. Sometimes you may only have a couple entities approve it and in other areas you may have all 3 approve it. 

Triple Freeport Tax Exemption

This occurs with all 3 jurisdictions (city, county, and school districts) enact the Freeport tax exemption. If your warehouse space is located in a Triple Freeport area then you do not have to pay inventory tax on any goods that are moved out of Texas within 175 days from the date they were acquired or brought into Texas.  

If you are planning on leasing Austin warehouse space and your company stores, manufactures, or sells goods in Texas that are transferred out of the state in less than 175 days you should definitely apply and see if you qualify.

 

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