Should Big Spring City, Howard County and the school systems consider adopting the Freeport Exemption
In 1989 the Texas voters approved a constitutional amendment to exempt “Freeport goods” from property taxes, if the individual taxing entities wished to do so. These entities included cities, counties, and school districts. Many are familiar with the term “triple freeport,” meaning that a city, county and school system in a particular location have all adopted the exemption. To date no entity in Howard County has chosen to do so, but it may be time to review that situation.
An entity that adopts the freeport exemption does not collect business personal property taxes on inventory located in its jurisdiction, held for less than 175 days and then transported out of the state. Having these exemptions has made a difference to many manufacturers who assemble products in Texas and transport them nationwide. The exemption has been a “tie breaker” in a number of cases where a manufacturer or warehousing operations were deciding where to locate in Texas over the years.
For example, the booming Austin MSA, which consists of 20 cities, numerous school districts and counties has the triple freeport exemption throughout. However, it took years to get to this point because existing businesses that could take advantage of the exemption had to be negotiated with to work out arrangements where they paid money in lieu of the taxes they had been paying on this type of inventory for a period of time, usually at a declining rate over several years until those payments reached zero. These agreements ensured there was no major financial shock to participating government’s budgets. If the taxing entities in Howard County were to consider adopting the exemption, identifying the existing businesses who might benefit from the exemption and discussing such an arrangement represent one of the first steps that would need to be taken.
The initial question however is, why would the City, Howard County and the school districts want to adopt the exemption? Honestly, in today’s economic environment would seem hard to justify and there are few local companies that would see a substantial benefit today.
Having said that, with the economy expected to recover as the Covid pandemic subsides and the long-term potential of the Ports-to-plains corridor developing, it is time to at least begin the discussion. If Big Spring and Howard County are seriously intent on further diversity in the local economy, it would be wise to consider whatever tools are available to address the task. The freeport exemption is only one of those tools, but with business competition getting ever more fierce it should be discussed.