Three tax breaks available in 2001 for Texas businesses
By Kay Bell • Bankrate.com

Companies in almost every county in Texas can apply for millions in tax breaks next year, according to the state's top financial officer. Under a 1999 law, the Texas Comptroller annually evaluates the economic health of each of Texas' 254 counties and determines which should be designated as a Strategic Investment Area (SIA). Businesses in the investment areas may be eligible for three tax breaks: a research credit, a job creation credit and an investment credit. Next year, businesses in 224 counties can apply for the credits.

Research credit
The research credit is available to firms that perform qualified research in Texas. It is based on the company's annual increase in research activities during the prior year.

Four percent of qualified research expenses will be credited for tax reports due through the end of 2001. That credit will increase to 5 percent for tax reports due in 2002 and after.

Job creation credit
Companies that create jobs in selected counties may qualify for a job credit equal to 25 percent of the wages paid to new hires in their first year of employment.

To qualify, a corporation must create at least 10 jobs, pay at least 110 percent of the county's average weekly wage, pay health benefits and be engaged in manufacturing, warehousing, wholesale distribution, computer services or research.

The credit is limited to 50 percent of the firm's tax liability in the year that credits are claimed. Unclaimed credits may be carried over for a maximum of five years.

Investment credit
Corporations that invest at least $500,000 in machinery and equipment can qualify for a franchise tax credit equal to 7.5 percent of that investment.

This credit, too, is limited to 50 percent of the firm's tax liability.

Tax breaks also depend on location
Exactly which breaks are available also depends on which investment area designation a county receives. There are three types of SIAs: full, limited-purpose and sub-county zones.

Comptroller Carole Keeton Rylander granted full SIA statues to 114 counties based on their relative unemployment rate and per-capita income.

Firms in these counties that are engaged in manufacturing, warehousing, wholesale distribution, computer services or research can apply for job creation and investment credits, as well as the research credit bonus.

Another 106 counties qualify for the limited-purpose SIA designation based on their population. Corporations engaged in agricultural processing in these counties can apply only for the job creation and investment credits.

Five sub-county zones -- Dallas, Harris, Bexar, McLennan and El Paso -- also meet full-purpose SIA requirements because they have been selected as federal urban enterprise communities.

All of El Paso County already is a full SIA, so eligible businesses throughout the county can participate in the tax break program. In the four other sub-county zones, only companies that operate within the urban enterprise boundaries may apply for the full SIA state tax benefits.

The total dollar amount of the tax breaks will depend on how many businesses apply for the tax credit program, notes Rylander. She says rough estimates are that "millions" will be available to eligible large and small businesses.