Enterprise Zone (EZ) A geographic area nominated by a city or county or a combination of cities and/or counties through an application to the Texas Department of Commerce (Commerce) that meets at least one of two possible primary distress criteria (high unemployment or population loss) and one of a possible even secondary distress criteria; has a continuous boundary; and is at least one square mile in size, but is not larger than 20 square miles or 5% of the governing body's/bodies jurisdiction (up to 10 square miles), whichever is larger. Designation is for seven years.

Qualified Business (QB): A business located in or committed to locate in a state-designed EZ that commits to hire at least 25% of its new employees from EZ residents within the applicant governing body/bodies jurisdiction or economically disadvantaged persons.

Enterprise Project (EP): A QB that commits to create or retain permanent jobs; commits to make a minimum investment in the EZ; and commits to maintain a level of jobs from the date of state tax refund for at least three years. The EP certifies to Commerce each year of a five year designation period that it is still a QB. The applicable zone governing city and/or county nominates the EP through a competitive quarterly application process. Designation occurs upon approval by Commerce.

Qualified Employee (QE): An employee that works at least 50% of his/her time for the QB in the EZ.

New Permanent Job: A new employment position that provides a QE of a QB with employment of at least 1,820 hours of work annually.

Qualified Residential Builder: A residential builder that constructs new single or multi-family housing in an enterprise zone. The builder is eligible for benefits from investment in the zone. An enterprise zone governing body must nominate the builder to Commerce for designation as an enterprise project for the builder to receive benefit. The designation counts against the number of enterprise project designations an enterprise zone governing body may have each state fiscal biennium.

Retained Job: A position that existed with a QB that has provided employment to a QE of at least 1,820 hours annually and retained during the period the business is designated as a QB. The benefit is available under limited circumstances.

Recycling Market Development Zone: An EZ that the applicable city and/or county governing body has determined will be used to develop and promote industries and businesses that recycle.

Reinvestment Zone (RZ): A city or county designation that authorizes tax abatement or tax increment financing according to the Texas Tax Code. An EZ is automatically an RZ; however, an RZ is not necessarily an EZ and establishment of the EZ does not guarantee tax abatement.

State and Local Incentives Available to Enterprise Projects and Qualified Businesses

Criteria for becoming an enterprise project

To become an enterprise project, a business must be nominated by the applicable city and/or county that governs the enterprise zone in which the business is or will be located. Applications are accepted on the first working day of every quarter, beginning September 1, 1995. Commerce is authorized to designate 65 businesses as projects between September 1, 1995, and August 31, 1997. Based upon project availability, each enterprise zone governing body may have four businesses designated as projects during this period; however, two additional project designations may be awarded based upon a competitive scoring process.

A business designated as a project must be a "qualified business" during the entire five-year project designation period. A qualified business is a business that is active in an enterprise zone and at least 25 percent of its new employees are residents of any zone within the governing body/bodies jurisdiction or are economically disadvantaged. Jobs for which a refund has been paid must be maintained for at least three years from the date of refund or the funds may be subject to recapture with interest and penalty by the Comptroller. Projects designated after August 31, 1995, may not apply for state sales and use tax refunds or franchise tax reductions until after September 1, 1997.

State incentives available to enterprise projects in an enterprise zone:

Enterprise projects are eligible for a refund of state sales or use taxes paid on machinery and equipment, building materials, labor for the rehabilitation of existing buildings, and electricity and natural gas purchased for use in the enterprise zone. The refund is $2,000 for each permanent job the project creates or retains during the five year designation period. The number of jobs for which a refund may be received is based upon commitments made in the project application. Each project is limited to a maximum refund of $1.25 million or $250,000 per year over the five year period.

Enterprise projects are eligible for a franchise tax reduction on its annual report filing for each year of their five year designation. State franchise tax liability is based upon the project's taxable capital or earned surplus income. The reduction is based on the amount of capital investment made by the project in the enterprise zone. The project's apportioned taxable capital may be reduced by 50 percent of the capital investment made in the enterprise zone or the apportioned earned surplus income may be reduced by 5 percent of the capital investment made in the enterprise zone. Enterprise projects will receive priority for funding under the Smart Jobs Program.

State incentives for a qualified business located in an enterprise zone:

* A one-time state sales tax refund of up to $5,000 paid on machinery and equipment for retaining at least 10 jobs in the enterprise zone. Up to three businesses may be nominated per year by an enterprise zone governing body.

* A one-time franchise tax refund of up to $5,000 for creating at least 10 jobs in the enterprise zone. Up to three businesses may be nominated per year by an enterprise zone governing body.

* Priority or preference for all programs administered by the state.

Local incentives for a qualified business located in an enterprise zone:

* A 5 percent utility rate reduction off the lowest rate available in the enterprise zone.

* Subject to a local taxing authority's guidelines and criteria for tax abatement, the duration of an abatement agreement may differ for each participating taxing authority.

The Texas Enterprise Zone Program encourages permanent job creation and retention and capital investment in economically distressed areas of Texas through partnerships between local communities, businesses and the state. The program is a viable economic development strategy for communities by providing them with the ability to offer state and local incentives to new or expanding businesses.

To offer incentives to a business, a city and/or county must establish an enterprise zone. To establish a zone, a city and/or county must nominate a specific geographic area within their jurisdiction to the Texas Department of Commerce. The area must meet certain size and distress criteria, reflect the economic objectives of the community, and specify local incentives that may be offered to businesses in the zone. Upon designation by Commerce, an enterprise zone is effective for seven years. Each city and/or county may have up to three enterprise zones. There are currently 163 enterprise zones throughout Texas. Enterprise zone applications may be submitted at any time.

Business Incentives:

Businesses located in enterprise zones may be eligible for local and/or state benefits. To be eligible for state benefits, a business must be nominated to Commerce by the jurisdiction that created the enterprise zone. To obtain state benefits, a business must be a qualified business. A qualified business must be located in or commit to locate in an enterprise zone. The business must also hire at least 25 percent of its new employees from residents of the enterprise zone or hire economically disadvantaged persons as defined by state law. The business must maintain the qualified business status throughout a specified period.

Additional state benefits are available to qualified businesses nominated for approval to Commerce and designated as enterprise projects. Enterprise project designations are for five years. State incentives available to enterprise projects include a refund of state sales and use taxes paid on qualifying items in the amount of $2,000 per job created or retained, reduction in franchise taxes based on capital investment made in the zone, and priority for state administered programs.

Enterprise project designations are made on a competitive basis. Applications are accepted quarterly and are scored based on the jobs to be created or retained, the amount of capital investment, the distress level of the enterprise zone, and other commitments made by the business and the nominating community. Commerce is authorized to designate 65 enterprise projects between September 1, 1995, and August 31, 1997.

Examples of local incentives that may be offered include real and/or personal property tax abatement, refunds of local sales and use taxes, utility reductions, low-interest loans, public service expansion such as public transit, day care and literacy, and crime prevention programs.

In order for a business to be eligible to receive a property tax abatement from a city or county, the business must be located in a reinvestment zone and have an executed tax abatement agreement. An enterprise zone is automatically a reinvestment zone. Being located in a reinvestment zone or enterprise zone does not guarantee tax abatement. Only in an enterprise zone may the terms of an abatement agreement vary among taxing jurisdictions.

Since the program was initiated on September 1, 1987, 210 businesses have been designated an enterprise projects in enterprise zones. These businesses have committed to create more than 35,000 new jobs, retain more than 1,400 existing jobs, and invest over $5 billion in capital.

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