In 1989, Texas voters approved a constitutional amendment giving local taxing jurisdictions the option to exercise or not exercise their authority to tax specific personal property known as freeport goods. Smith County is one of only a few counties in the State of Texas in which ALL taxing entities elected to grant the freeport exemption, providing a substantial financial benefit to Smith County primary employers, which by definition, manufacture or distribute products that are shipped outside of Texas. In addition to the freeport exemption, some taxing entities have also adopted HB 621, which eliminates inventory taxes on goods shipped within the State of Texas.
The freeport exemption exempts certain types of tangible personal property (i.e., inventory) from ad valorem (property) taxation provided the property is:
Acquired in or imported into Texas to be forwarded out of state
Detained in Texas for assembling, storing, manufacturing, processing, or fabricating purposes by the person who acquired or imported it; and
Transported out of state within 175 days after the date the person acquired or imported it into Texas.
Because oil, natural gas, and other petroleum products are not considered freeport goods, they are not eligible for the exemption and therefore remain taxable. Even when goods are sold to an in-state purchaser rather than shipped out of the state, they may qualify for the Freeport exemption - however, the property must qualify under the above requirements as Freeport property and must be transported out of the state within 175 days after it was first acquired in or imported into the state.
A company that manufactures or distributes a product from within a jurisdiction which has been designated a freeport will realize a significant savings if it serves national or international markets. This could therefore encourage additional investment in buildings and equipment in the local jurisdiction.
The amount of the goods in transit exemption for each year is normally based on the percentage of inventory made up by such goods last year. A two-page application requests a company to identify property owned on January 1 of each year (or September 1 of the preceding year if the company receives a September 1 inventory appraisal). A company must apply for the exemption each year from the Smith County Appraisal District between January 1 and May 1.
The Texas Municipal League has assumed editing and publication of the Economic Development Handbook. The publication, originally prepared by the Texas attorney general’s office, had become out-of-date. League staff, as well as several recognized legal experts, have updated the handbook and posted it online. It will be updated following each session of the Texas Legislature. The publication is only available online and can be downloaded in PDF format.