Tax abatement programs help to encourage investment and economic development in Texas, especially in the energy sector. These programs allow business and local governments to temporarily reduce or eliminate property taxes on new developments or significant improvements to existing facilities. For existing enterprises and startups considering projects in Texas, understanding how tax abatements are established can be valuable when it comes to cultivating long-term financial viability.
In Texas, tax abatements are governed by Chapter 312 of the Texas Tax Code, also known as the Property Redevelopment and Tax Abatement Act. Under this statute, a local government can enter into an abatement agreement with a business to exempt all or a portion of the increase in taxable property value resulting from a new investment. These agreements are often used to attract large-scale industrial projects, including those in oil and gas, renewable energy and related infrastructure.
Getting started
To establish a tax abatement program, a local government must first designate a specific geographic area as a reinvestment zone. This designation requires a public hearing and a finding that the area is underdeveloped, underutilized or would benefit from new investment. The zone can include greenfield land or areas in need of redevelopment.
Once the reinvestment zone is established, the local governing body may consider individual abatement agreements. Each agreement must be approved by the relevant governing board—such as a city council or county commissioners court—and must detail the terms of the abatement. This includes the duration (usually between five and ten years), the percentage of tax reduction, performance obligations by the business and the types of improvements eligible for the abatement.
Negotiating these agreements requires careful planning. Energy companies must present clear benefits to the community, such as job creation, capital investment and/or environmental improvements. Many jurisdictions also require compliance with certain environmental, safety or local hiring standards. The terms are often subject to public scrutiny, making transparency and community engagement important throughout the process.
In a state known for welcoming large-scale energy projects, tax abatements can offer meaningful incentives for companies willing to invest in Texas communities. With a strategic approach, these programs can support both corporate goals and local economic growth.