School districts eyeing business tax exemption

By Paige Lambert

The Dripping Springs school board is in the lengthy process of researching and assessing how adopting a freeport exemption could impact the city’s future.

Hays CISD superintendent Mike McKie and Deputy Superintendent Carter Scherff met with the Greater San Marcos Partnership (GSMP) Friday regarding the freeport exemption. Hays CISD is working on an analysis of the potential benefits and problems such an exemption could present.

Other governmental entities already have the exemption in place, including Kyle, Buda and San Marcos.

Why the sudden buzz about this property tax exemption?

The freeport exemption was approved by the Texas legislature in the 1980s, Adriana Cruz with GSMP said. 

The exemption, which exempts property from ad valorem taxes, applies to inventory of manufacturing or distribution businesses which export their goods outside of the state. The tax code exemption does not apply to oil, gas or petroleum productions. A school board, city government and county government can approve the exemption.

The exemption only applies to goods that leave Texas within 175 days from the date they are brought in or acquired in the state.

Cruz presented the idea to the Dripping Springs school board during its Aug. 24 meeting. Cruz said GSMP is promoting the exemption because it brings big companies and economic development in Hays County.

“We would be far more competitive with other counties for investment,” she said. “It would create a diverse economy.”

She said many companies look for a triple-freeport status, meaning adoption by the school board, city and county, when deciding where to relocate.

Currently only the cities of Buda, Kyle and San Marcos have the exemption in place.

The city of Kyle adopted the exemption more than 10 years ago, said Diana Blank-Torres, Kyle’s director of economic development.

While she couldn’t recall a company in Kyle which is currently using the exemption, she credits Kyle’s economic boom to its adoption.

“We would be in a bigger battle if we didn’t have it,” Blank-Torres said. “We have been getting a lot of information requests from businesses contacting the Austin chamber about it.”

Recently, officials from Hays, Travis and nearby counties met with a medical device manufacturer about where the business would relocate. Cruz said the company planned to build a 100,000 square-foot facility, but only in a triple-freeport status county.

“If we didn’t have a few places with exemptions, we would have left,” she said. “The property tax (for the facility) would be much greater than the inventory tax.”

Cruz said the GSMP has been working with the county and city officials to adopt the exemption. 

The idea is to look at long-term economic development, Blank-Torres said. The organization is also working on an analysis study for the Hays CISD school board to show how it will impact the cities, she said.

While the exemption may seem positive for future economic development, there isn’t a lot of data on how it will impact Hays County.

Bruce Gearing, Dripping Springs superintendent, said the board won’t discuss it for a couple of months at least. He said he is concerned with what will happen once it is adopted.

“Once you adopt, you can’t reverse the decision,” Gearing said. “So we have to make sure we want it.”

Cruz said if the county adopts the exemption, the initial loss would be $400,000 over five years. Businesses would pay 25 percent less each year, allowing the county to gradually adjust to the exemption, she said.

Obtaining the data for Hays CISD will also be difficult, Blank-Torres said.

“Our difficulty is the grey area, where our district crosses into the city of San Marcos,” she said. “The more jurisdictions you cross the harder it is to get done.”

If Dripping Springs adopts it there would be immediate impact since the city doesn’t contain any manufacturing or distribution companies, Cruz said. 

Even though the delayed impact may seem like a good thing to others, Gearing said it just raises more questions.

“That’s part of the problem,” Gearing said. “We don’t have anything to show how that might impact Dripping Springs.”

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