Can a Texas enterprise project outside a strategic investment area claim both the jobs creation and investment credits, and abate more than 50% of its franchise tax?

Plain-English summary

A taxpayer asked two questions about the (pre-2008) franchise-tax enterprise-project credits: (1) does a project that is not located in a strategic investment area still qualify for the jobs creation and investment credits, and (2) if it qualifies for both, can it abate more than 50% of its franchise tax? The Comptroller answered yes to both.

• No strategic-investment-area requirement. An enterprise project designated on or after September 1, 2001 that creates qualifying jobs or makes a qualified capital investment within an enterprise zone may qualify for both the jobs creation credit (Tax Code Secs. 171.751-171.761) and the investment credit (Secs. 171.801-171.811). It does not have to be within a strategic investment area.
• The two credit windows. The jobs creation credit was claimable on reports due on or after September 1, 2003 but before January 1, 2005; the investment credit on reports due on or after September 1, 2003 but before January 1, 2006.
• The 50% / 100% limits. Each credit individually may not exceed 50% of the franchise tax due for the report before other credits. But the sum of the credits may be up to 100% of the tax due after other credits. So a project qualifying for both credits can reduce its franchise tax by more than 50%.
• Conditions apply. All qualifying conditions must be met and the credits calculated under the Tax Code.

Currency note: These pre-2008 enterprise-project credits had eligibility windows that have since closed, and the tax itself was replaced by the current margin tax (House Bills 3 and 3928) effective January 1, 2008. Treat as historical.

What this means for you

Businesses that ran designated enterprise projects

Being outside a strategic investment area did not disqualify you - designation on or after September 1, 2001 plus qualifying jobs or investment inside an enterprise zone was enough. Stacking both credits could wipe out more than half of a report's franchise tax, up to the full amount after other credits.

Accountants and tax professionals

Apply the per-credit 50% cap and the combined 100% cap, and mind the report-due-date windows (jobs credit before 1/1/2005; investment credit before 1/1/2006). These credits do not exist under the margin tax.

Common questions

Q: Must an enterprise project be in a strategic investment area to get these credits?
A: No. Designation on or after September 1, 2001 with qualifying jobs or investment in an enterprise zone qualifies it, regardless of a strategic investment area.

Q: Can both credits together reduce more than 50% of the franchise tax?
A: Yes. Each credit alone caps at 50% of tax before other credits, but the two combined can reach up to 100% of the tax due after other credits.

Citations and references

Statutes:

• Tex. Tax Code Secs. 171.751-171.761 (jobs creation credit)
• Tex. Tax Code Secs. 171.801-171.811 (capital investment credit)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200409918L

Original ruling text

September 23, 2004

To: **

Dear **:

Thank you for your email to Ms. Angie Mendez concerning franchise tax credits.
Your inquiry has been forwarded to me for response.

You ask if an enterprise project is not located within a strategic investment
area, will the project qualify for the jobs creation and investment tax
credits. In addition, if the project qualifies, can the project abate more
than 50% of its franchise tax utilizing both credits?

Enterprise projects designated on or after September 1, 2001, who create
qualifying jobs or make a qualified capital investment within an enterprise
zone, may qualify for both the jobs creation and investment credit. See Texas
Tax Code Sections 171.751 through 171.761 and Sections 171.801 through 171.811.
The project need not be within a strategic investment area to qualify.

Under current law, enterprise projects qualifying for the jobs creation credit
may claim the credit on franchise tax reports originally due on or after
September 1, 2003 but before January 1, 2005. Enterprise projects may not
claim a jobs creation credit on franchise tax reports originally due on or
after January 1, 2005. Enterprise projects qualifying for the investment
credit may claim the credit on franchise tax reports originally due on or after
September 1, 2003 but before January 1, 2006. Enterprise projects may not
claim an investment credit on franchise tax reports originally due on or after
January 1, 2006.

Each credit individually may not exceed 50% of the amount of franchise tax due
for the report before any other applicable tax credits. The sum of the credits
cannot exceed 100% of the amount of franchise tax due for the report after any
other applicable tax credits. Therefore, if the enterprise project qualifies
for both the jobs creation and investment credit, the project may reduce its
franchise tax by more than 50%.

Please keep in mind that all qualifying conditions must be met in order to
establish eligibility for the credits and the credit calculations have to be
made in accordance with the Tax Code requirements.

The statutes I mention below, as well as other related information, are
available online at http://www.window.state.tx.us/taxinfo/franchise/index.html.

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 questions about this, my internet address is
[email protected], or you may call toll-free at 1-800-531-5441,
extension 59952.

Sincerely,

Teresa Bostick
Tax Policy Division