HBA-JLV H.B. 2686 77(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 2686 By: Solis, Jim Economic Development 3/20/2001 Introduced BACKGROUND AND PURPOSE The Texas Enterprise Zone Program was created to generate capital investment and job creation in economically distressed areas of Texas by providing communities with an economic development tool to offer state and local incentives and program priority to new or expanding businesses in these designated areas. An essential function of this program is to create partnerships for promotion of business expansion and revitalization of these areas. The Defense Economic Readjustment Zone Program was established to assist adversely impacted defense-dependent communities in responding to or recovering from defense closures or realignments of defense installations, or reductions or termination of defense contracts. House Bill 2686 makes substantive changes to the Texas Enterprise Zone Program and Defense Economic Readjustment Zone Program and provides for increased incentives for certain businesses located in an enterprise zone, federal empowerment zone, or federal enterprise community. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS House Bill 2686 amends the Government, Tax, and Labor codes to provide tax incentives for certain businesses located in enterprise zones, defense readjustment zones, or certain federally designated zones. The bill decreases the ceiling on the number of jobs the Texas Department of Economic Development (department) may include in the computation of an enterprise project tax refund from 625 to 250 jobs (Sec. 2303.407, Government Code). The bill provides that an enterprise project is entitled to a franchise tax credit (Sec. 2303.504, Government Code). The bill authorizes the department to monitor a qualified business, enterprise project, or defense readjustment project to determine whether and to what extent the business or project has followed through on any commitments and to determine that the qualified business, enterprise project, or defense readjustment project is not entitled to a refund or credit of state taxes (Secs. 2303.516 and 2310.413, Government Code). The bill increases from $2,000 to $4,000 the maximum amount of the refund allowed for wages paid to an employee receiving financial assistance (Sec. 303.103, Labor Code). The bill adds an additional eligibility requirement for a person to be eligible for the refund of wages, to provide that a person perform at least 50 percent of the employee's services for the person in an enterprise zone, federal empowerment zone, or federal enterprise community (Secs. 301.104 and 301.105, Labor Code). The bill provides that an enterprise project or defense readjustment project is eligible for a refund of certain taxes imposed on purchases of tangible personal property purchased and consumed in the normal course of business in the enterprise zone or defense readjustment zone and taxable services. The bill increases the maximum tax refund that enterprise projects qualify for, from $2,000 to $5,000, for each new permanent job or job that has been retained by the enterprise projects for a qualified employee (Sec. 151.429 and 151.4291, Tax Code). The bill authorizes a corporation to claim a credit or take a carryforward credit without regard to whether the strategic investment area, enterprise zone, or defense readjustment zone in which it made qualified research expenses and basic research payments or created qualifying jobs subsequently loses its designation as a strategic investment area, enterprise zone, or defense readjustment area (Secs. 171.722 and 171.752, Tax Code). The bill also authorizes a corporation that is an enterprise project or defense readjustment project to multiply by two the amount of any qualified research expenses and basic research payments made in an enterprise zone or a readjustment zone in computing a tax credit for research and development activities. The bill prohibits a corporation from multiplying expenses and payments more than once for such a credit (Sec. 171.723, Tax Code). The bill authorizes a corporation that has been designated as an enterprise project or as a defense readjustment project to claim the entire credit for job creation or capital investments earned during an accounting period against the taxes imposed for the corresponding reporting period (Sec. 171.754 and 171.804, Tax Code). EFFECTIVE DATE September 1, 2001. Provisions relating to the Tax Code take effect January 1, 2002.