What it is, is an otherwise boring Texas Tax Code chapter that becomes interesting only because it involves lots of money. Potentially, for your district. As you well know, Texas school districts rely on local property taxes to fund their operations, and school district property taxes often comprise the largest portion of a business venture’s property tax bill. What this means is that a school district’s ad valorem tax rate can make the difference between a community gaining or losing a substantial business investment and revenue source.
Chapter 313 of the Texas Tax Code allows school districts to address this economic conundrum at the local level by entering into “Value Limitation Agreements” (also known as Chapter 313 Agreements) with qualifying business entities. Value Limitation Agreements work by capping a qualifying business’s taxable value for the purpose of calculating district maintenance and operations (M&O) taxes for the life of the Agreement—typically ten years. It is important to note that the business will nonetheless pay the interest and sinking (I&S) portion of their property taxes—used to repay principal and interest on bonds—on the full value of its property. Following the limitation period, the company must maintain a viable presence in the community, and will resume paying school district taxes on the full value of the property.
How is limiting the tax effort of a major property owner a good thing (you might be wondering)? The short answer is that entering into a Chapter 313 Agreement gives your community a competitive advantage in attracting new business in the first place. Even temporarily limited tax effort from a new and significant property owner is better than none. A participating school district should not see its tax revenues decrease by approving a Chapter 313 Agreement because of revenue protections and supplemental payments that can be built into the Agreement itself.
Whether your District is considering a Chapter 313 Agreement for the first time or has worked through the process before, it is vital to get legal and financial advice on the deal and assistance with the process. Fortunately, the application process can be set up to shift the cost burden to applicants (businesses) for all legal and financial consulting services related to processing an application and administering a limitation agreement.
DAWG BONE: 313 AGREEMENTS, IF DONE RIGHT, CAN BE A HUGE VALUE ADD FOR YOUR COMMUNITY. SO CALL US AND WE’LL HELP YOU DO IT RIGHT.
Tomorrow: Another Installment in the Saga of the Teacher Who Isn’t that Great and Doesn’t Sign and Timely Return His/Her Contract.