Hays CISD trustees are one step closer toward implementing an ad valorem tax exemption for certain manufacturing companies in the area.
Board trustees next week are expected to vote on potentially adopting the Freeport Exemption, which is a form of tax exemption used by communities for economic development and job creation.
In addition, the board will rescind a December 1989 resolution denying tax exemption for Freeport goods. Board trustees will also authorize Superintendent Michael McKie to execute proposed Freeport Exemption agreements with eight companies currently operating in the district.
Annette Folmar, Hays CISD chief financial officer, said Monday the board’s resolution is complicated as it was the culmination “of a lot of discussion” on the Freeport Exemption.
Dan Casey, with Moak, Casey and Associates, said one reason the Freeport tax exemption is important to businesses that Texas is one of a half-dozen states that taxes inventory.
Companies that qualify for the Freeport Exemption would be exempt from paying property taxes on inventory.
Most states don’t have similar discussions, as inventory is already exempt from taxes.
Casey said over the last 20 years, areas that don’t have a Freeport or Triple Freeport Exemption have not been on the lists for companies to move to.
Triple Freeport is the situation in which a city, county and school district offer the tax exemption. Hays County and Kyle have passed legislation in favor of a Freeport Exemption.
Diana Torres, Kyle Economic Development director, said having a Triple Freeport in place is the “final piece of the puzzle, it’s the deal breaker” for some businesses.
But implementing the Freeport exemption will be a permanent move by the board and cannot be revisited in the future, Casey said.
Additionally, the district would be negatively impacted in the first year as the state wouldn’t be able to recognize the property tax value change.
The Hays Free Press reported in April 2016 the district stands to lose $700,000 in revenue the first year of the exemption. The district would also lose $45,000 per year that goes to debt service.
But to counterbalance, the district would work with businesses for a “hold-harmless” agreement. The agreement could mitigate the loss, as companies would pay 100 percent of the Freeport tax the first year.
Afterward, the amount of taxes paid by the companies decreases by 25 percent.
Folmar said the agreements were conducted between existing Freeport companies with a tax liability of $1,000 or above. The district came up with a list of eight companies. However, the district will not seek similar hold-harmless agreements with any new companies in the future.
Casey said school districts have protections with hold-harmless agreements.
“The other thing in hold-harmless, I have never recalled a company that has not made good on its obligations within an agreement,” Casey said.
Of the eight companies the district is working with for agreements, all companies are in good standing with the Hays County Tax Assessor Collector’s office, Folmar said. One company is reviewing language within its agreement.
Folmar added timing of the resolution is also important, as the district wanted to ensure the companies’ contracts are in place before implementing the Freeport exemption.
“We’ve been talking about this item for over a year, but we didn’t want to rush it until all of the contracts have been signed,” said Holly Raymond, Hays CISD board president. “We wanted to do our due diligence. We wanted to make sure all of the contracts are in place.”
Willie Tenorio, District 2 trustee, said because Hays CISD is a fast growth district, it’s gaining taxable property “all of the time,” which would help continue to increase property tax revenue.
But ensuring the district is cautious prior to implementing Freeport exemption is paramount.
“The old saying is, with a breakfast of bacon and eggs, the chicken is involved but the pig is committed,” Tenorio said. “We’re the pig, we’re committed and we can never change this.”