Does a corporation building a pork-processing plant in a Texas Strategic Investment Area qualify for the franchise-tax capital investment credit, and possibly the jobs creation credit?

Plain-English summary

A representative asked whether a client, an agricultural processor ("Ag Processor"), would qualify for the Texas franchise-tax capital investment credit for a new pork-processing plant. On the facts presented, the Comptroller said yes, and noted the client might also qualify for the jobs creation credit.

The answer relied on these stated facts:

• The plant would sit in a county that qualified as a limited-purpose Strategic Investment Area for fiscal 2002 (a meat-packing operation, SIC Industry Code 2011).
• Ag Processor would employ 200-300 full-time employees and pay an average weekly wage of at least 110% of the county average weekly wage.
• It would offer a group health benefit plan (as defined in Tax Code Sec. 171.751) and pay at least 80% of the premiums.
• It would make a minimum $500,000 qualified capital investment after January 1, 2000, in depreciable tangible personal property of a type described in IRC Sec. 1245(a) (not property under an operating lease, and not buildings or their structural components).

Currency note: These credits were part of the pre-2008 franchise tax, replaced by the margin tax effective January 1, 2008 under House Bills 3 and 3928. The Strategic Investment Area capital investment and jobs creation credits described here were not carried into the margin tax; confirm present law.

What this means for you

Businesses making a major Texas investment (pre-2008)

The old franchise tax rewarded large capital projects in designated areas with the capital investment credit, and job growth with the jobs creation credit. Qualifying turned on specific tests - location in a Strategic Investment Area, wage level, health coverage, and a minimum investment in the right kind of property.

Tax professionals

This is a favorable eligibility determination on stated facts, not a computation. The answer presumes each recited fact (area status, wage, health-plan share, and the $500,000 investment in Sec. 1245(a) property) holds; a change to any of them could change the result. Both credits were repealed with the shift to the margin tax.

Common questions

Q: What credit did the plant qualify for?
A: The pre-2008 franchise-tax capital investment credit; the Comptroller added that it might also qualify for the jobs creation credit.

Q: What kind of property counts as the qualified investment?
A: Depreciable tangible personal property of a type described in IRC Sec. 1245(a) - not operating-leased property, and not buildings or their structural components.

Q: Do these credits still exist?
A: No. They were part of the franchise tax that the margin tax replaced effective January 1, 2008.

Citations and references

Statutes and rules:

• Texas Tax Code Sec. 171.751 - defines a group health benefit plan for the franchise-tax economic-development credits
• Internal Revenue Code Sec. 1245(a) - describes the depreciable tangible personal property that can count as a qualified capital investment

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200201732L

Original ruling text

January 18, 2002

Dear ***:

This letter is in response to your request regarding whether or not your client
qualifies for the Texas franchise tax capital investment credit.

You have indicated your client is a corporation (Ag Processor) that is
considering setting up a pork processing plant in COUNTY, Texas near the city
of ***. COUNTY qualifies as a limited-purpose Strategic Investment
Area for the 2002 fiscal year. The plant falls under Industry Code 2011 for
Standard Industry Classification purposes as a meat packing plant. Ag
Processor will slaughter, process, and package pork products to sell at
wholesale to distributors, grocery chains, or other processors.

You have also indicated Ag Processor will initially employ 200-300 full-time
employees and will pay an average weekly wage that is at least 110% of the
COUNTY average weekly wage. Ag Processor will also offer a group health
benefit plan, as defined in Texas Tax Code 171.751, to cover its full-time
employees and will pay at least 80% of the premiums or other charges assessed
under the plan.

Additionally, you suggest Ag Processor will make a minimum $500,000 qualified
capital investment after January 1, 2000, by purchasing several million dollars
of tangible personal property of a type described in Internal Revenue Code
(IRC) 1245(a). This property will be subject to an allowance for depreciation,
costs recovery under the accelerated cost recovery system, or amortization.
None of the property will be leased under an operating lease or expensed under
IRC 79, nor will the property include buildings or any structural components of
buildings.

You have requested this office to make a determination whether your client, Ag
Processor, will fall within the parameters to claim a franchise tax capital
investment credit.

Response:
Yes, Ag Processor will be able to claim a capital investment credit for Texas
franchise tax purposes. Your client might also qualify for the jobs creation
credit.

This response is based on the facts presented and current law. If there are
different or additional facts, the response may change.

If you have any questions or need additional information, please call me at
1.800.531.5441, extension 34629.

Sincerely,

Lowell Olsen Dunn
Tax Policy Division