Texas Freeport Exemption: Don’t Leave Money on the Table!

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You may be asking yourself, what is the Freeport Exemption?

The Freeport Exemption is a business personal property tax exemption on inventory that is in Texas for a short period of time (175 days or less) and will be transported outside of the State of Texas. In 1989, Texas voters approved a constitutional amendment to exempt these “Freeport goods” from property taxes. This valuable exemption is part of a larger effort to attract companies that qualify for Freeport Exemptions to the State of Texas by offering them a tax break.

Are there specific criteria that must be met in order to qualify for the Freeport Exemption?

  • The exemption applies to inventory including finished goods, supplies, raw materials, and work in process. The exemption does not apply to oil, natural gas, or liquid or gaseous materials that are immediate derivatives of the oil refining or natural gas.
  • The purpose of the goods in Texas must be for assembling, storing, manufacturing, repair, maintenance, processing or fabricating.
  • The Freeport goods that are eligible for this exemption must be transported out of Texas within 175 days of the date that they are acquired, manufactured, or brought into Texas.

How do I receive the Freeport Exemption?

In order to receive the Freeport Exemption, your business must file an annual application with your county’s appraisal district. With this application, you will provide documentation including sales reports, inventory reports and financial statements to prove that you qualify for the exemption. This step is extremely important, as everything must be documented in order to receive the Freeport Exemption. Kurz Group works hundreds of Freeport applications each year all across Texas, and our property tax consultants know and understand the strict documentation requirements from the appraisal districts and can provide your business with targeted real estate tax help. You can read how we helped one of our clients with their Freeport Exemption denial in our website case study.

How much will I save from the Freeport Exemption?

The amount of tax dollars you will save from the Freeport Exemption each year is based on the percentage of goods that were transported outside of Texas in the previous year. For example, a company that has an inventory value of $5,000,000 and shipped 60 percent of their inventory outside of Texas in the previous year would receive an exemption of $3,000,000 from each jurisdiction that grants the Freeport Exemption, leaving taxable inventory at $2,000,000. At a tax rate of 2.5%, the resulting savings would be $75,000!

Do all jurisdictions in Texas offer the Freeport Exemption?

It is important to note that not every jurisdiction grants the Freeport Exemption. Since the city, county and school districts are all separate taxing entities, they each had to approve the addition of the Freeport Exemption. There is a possibility that not all of the jurisdictions where your property is located grant the exemption. Each county appraisal district can tell you what jurisdictions allow the Freeport Exemption. If your location hits the jackpot and gets what is known as the “Triple Freeport,” this is the best possible scenario and means that all three major jurisdictions – the city, county and school district – allow the Freeport Exemption.

The moral of this story is if your company manufactures, stores, or sells goods in Texas that are ultimately transferred out-of-state within 175 days, you should definitely take advantage of this valuable exemption and start saving today!

If you’re concerned that your exemption won’t get approved, call the experts – your property tax consultants – to step in, handle your property tax appeal and see your exemption to the finish line. Don’t leave money on the table – put it back in your pocket and ultimately increase your bottom line.

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