By Moses Leos III
Discussion on the impact of implementing an ad valorem tax exemption for certain manufacturing companies in the area hit the dais at the Hays CISD board of trustees Monday.
The Freeport Exemption, which was created by the state in 1989 as a form of tax exemption, is used by communities for economic development and job creation, according to a presentation from the Greater San Marcos Partnership.
Companies that qualify for the Freeport Exemption would be exempt from paying property taxes on inventory. Currently nine businesses, including CFAN in San Marcos, Fat Quarter Shop in Buda and RSI, Inc. in Kyle qualify for the exemption.
The caveat to the exemption, according to Hays CISD finance director Annette Folmar, is that local entities can include the qualifying companies in their taxable values.
According to Folmar, to spur economic development and job growth, various chambers of commerce and cities attempt to offer “triple Freeport” status, where the city, county and school district offer the exemption.
“That layer, according to the economic development community, attracts businesses with high wages,” she said
Hays County and Kyle have already passed legislation in favor of a Freeport Exemption.
But if the school district were to approve the Freeport Exemption, Folmar said the district would be negatively impacted in the first year, as the state wouldn’t be able to “recognize the value change.”
The district stands to lose $700,000 in revenue in the first year of the exemption. Hays CISD would also lose $45,000 per year that would have gone for debt service.
To counterbalance, the district could work with qualifying businesses to craft a “hold-harmless agreement.” The agreement could mitigate the loss of the $700,000, as the company would pay 100 percent of the Freeport taxes in the first year.
Over time, the amount of taxes paid by the company would decrease by 25 percent, while the district covers ad valorem tax payments by the same amount.
But one of the major unknowns, according to Folmar, is whether the exemption will improve the district’s tax base in the future.
“If we do have a business that comes here, they may bring tens of millions of dollars of infrastructure that can be taxed,” Folmar said. “Our tax base could substantially increase.”
She said more discussion and understanding would be needed before the district moves forward.
“It might allow other businesses to recognize the Freeport and make the decision to make the move to the school district,” Folmar said.