Type A and Type B Sales Tax Texas Municipal League Hyatt Lost Pines, Bastrop, Texas October 16, 2015
1. What is Type A and Type B Sales Tax? Type A and Type B sales tax are sales taxes which cities may impose for economic development. Cities must hold a sales tax election to implement the tax. If adopted the city could not exceed the two (2) percent local sales tax limit. State sales tax rate 6.25% Local sales tax cannot exceed 2.00% 2
5. WHEN MUST A TYPE A OR TYPE B SALES TAX ELECTION BE HELD? - Type A or Type B sales tax election must be held on a uniform election date. - The uniform election dates are: - the first Saturday in May in odd numbered years; - the first Saturday in May in even numbered years for political subdivisions other than counties; or - the first Tuesday after the first Monday in November. - Tex. H.B. 2354 (eff. 9/1/2015). 3
8. What is the Tax Rate for a Type A or Type B Sales Tax? The sales tax rate for either a Type A or Type B sales tax is in increments of 1/8 th of onepercent. The total rate for all local sales and use taxes may not exceed two (2) percent. Tex. Loc. Gov t Code Ann. 504.252(b) and 505.252(b) (as amended by H.B. 157 (2015)). 4
11. What are Permissible Type A Projects? Currently, Type A corporations may fund the following projects which must create or retain primary jobs: manufacturing and industrial facilities; research and development facilities; Military facilities recycling facilities; Distribution centers; small warehouse facilities; Primary job training facility by institutions of higher education; and Regional or national corporate headquarters. Tex. Loc. Gov t Code 501.101 and 504.103. 5
11. What are Permissible Type A Projects? (cont d) Additionally, Type A corporations may fund the following projects without creating or retaining primary jobs: Job training classes; Certain targeted infrastructure; Career center not located within the taxing jurisdiction of a junior college district; a general aviation business airport which is an integral part of an industrial park; port related facilities; and Development, improvement, maintenance commuter rail, light rail, or motor buses. Development or construction of housing facilities for public state college. (Expires 9/1/2017). 6
11. What are Permissible Type A Projects? (cont d) - Type A corporation created by a city located within 25 miles of an international border, may provide land, buildings, facilities, infrastructure, and improvements: required or suitable for the development or promotion of new or expanded business enterprises through transportation facilities including airports, hangars, railports, rail switching facilities, maintenance and repair facilities, cargo facilities, marine ports, inland ports, mass commuting facilities, parking facilities, and related infrastructure located on or adjacent to an airport or railport facility; OR Other projects if population of less than 50,000 or average rate of unemployment that is greater than the state average rate of unemployment during the most recent 12-month period. - Tex. Loc. Gov t Code 501.106 (as amended by H.B. 2772 (2015)). 7
11. What are Permissible Type A Projects? (cont d) Hidalgo County Provision: Type A projects which may be funded for certain cities: Expenditures found by the board of directors to be required or suitable for infrastructure necessary to promote or develop new or expanded business enterprises including airports, ports, and sewer or solid waste disposal facilities, provided: the corporation is created by a city located wholly or partly in Hidalgo county; and does not support a project with Type A or Type B sales tax revenue. Tex. Loc. Gov t Code 501.107. 8
9 11. What are Permissible Type A Projects? (cont d) Port Arthur Provision: Type A projects which may be funded for certain cities: city with a population of 10,000 or more, located in a county bordering the Gulf of Mexico or the Gulf Intracoastal Waterway, and has, or is included in a metropolitan statistical area of this state that has, an unemployment rate that averaged at least two percent (2.0%) above the state average for the most recent two (2) consecutive years for which statistics are available: Tex. Loc. Gov t Code 501.108.
11. What are Permissible Type A Projects? (cont d) Port Arthur Provision (cont d): project includes expenditures found by the board of directors to be required or suitable for infrastructure improvements necessary to develop and revitalize areas in the corporation s authorizing municipality, including: streets and roads, rail spurs, water and sewer utilities, electric utilities, gas utilities, drainage, site improvements, and related improvements; telecommunications, data, or Internet improvements; or facilities designed to remediate, mitigate, or control erosion, including coastal erosion along the Gulf of Mexico or the Gulf Intracoastal Waterway. This particular provision expires September 1, 2017. 10
12. What are Permissible Type B Projects? Projects which must create or retain primary jobs: manufacturing and industrial facilities; research and development facilities; military facilities, including closed or realigned military bases; transportation facilities; Sewage or solid waste disposal facilities; recycling facilities; air or water pollution control facilities; distribution centers; small warehouse facilities; primary job training facilities for use by institutions of higher education; regional or national corporate headquarters facilities; and projects which promote or develop new or expanded business enterprises including a project to provide public safety facilities, streets and roads, drainage and related improvements, demolition of existing structures, or general municipally owned improvements. Tex. Loc. Gov t Code 501.101 and 505.155. 11
12 12. What are Permissible Type B Projects? (cont d) Projects which need not create or retain primary jobs: job training classes; certain targeted infrastructure which promotes or develops new or expanded business enterprises. limited to streets and roads, rail spurs, water and sewer utilities, and electric utilities, gas utilities, drainage, site improvements, and related improvements, telecommunications and Internet improvements, and beach remediation along the Gulf of Mexico; land buildings, equipment, facilities, improvements, and expenditures required or suitable for a career center, provided the area benefited is not located in the taxing jurisdiction of a junior college district; professional and amateur sports, athletic facilities; entertainment, tourist, convention facilities; public parks and related open space improvements; affordable housing;
In this subtitle, project includes expenditures that are found by the board of directors to be required or suitable for infrastructure necessary to promote or develop new or expanded business enterprises, limited to: (1) streets and roads, rail spurs, water and sewer utilities, electric utilities, or gas utilities, drainage, site improvements, and related improvements; (2) telecommunications and Internet improvements; or (3) beach remediation along the Gulf of Mexico. Tex. Loc. Gov t Code 501.103. 13
12. WHAT ARE PERMISSIBLE TYPE B PROJECTS? (CONT D) Projects which need not create or retain jobs (cont d): certain water supply facilities and water conservation programs with voter approval; development, improvement, expansion, or maintenance of facilities relating to the operation of commuter rail, light rail, or motor buses; Certain airport or railport facilities; and Development or construction of housing facilities for public state college. (Expires 9/1/2017). 14
12. What are Permissible Type B Projects? (cont d) Type B corporation created by a city located within 25 miles of an international border, may provide land, buildings, facilities, infrastructure, and improvements required or suitable for the development or promotion of new or expanded business enterprises through transportation facilities including airports, hangars, railports, rail switching facilities, maintenance and repair facilities, cargo facilities, marine ports, inland ports, mass commuting facilities, parking facilities, and related infrastructure located on or adjacent to an airport or railport facility; OR Other projects if population of less than 50,000 or average rate of unemployment that is greater than the state average rate of unemployment during the most recent 12-month period. Tex. Loc. Gov t Code 501.106 (as amended by H.B. 2772 (2015)). 15
12. Permissible Type B Projects... (cont d) Hidalgo County Provision: Expenditures found by the board of directors to be required or suitable for infrastructure necessary to promote or develop new or expanded business enterprises including airports, ports, and sewer or solid waste disposal facilities, provided: the corporation is created by a city located wholly or partly in Hidalgo county; and Does not support a project with Type A or Type B sales tax revenue. Tex. Loc. Gov t Code Ann. 501.107. 16
Port Arthur Provision: Type B projects which may be funded for certain cities: city with a population of 10,000 or more, located in a county bordering the Gulf of Mexico or the Gulf Intracoastal Waterway, and has, or is included in a metropolitan statistical area of this state that has, an unemployment rate that averaged at least two percent (2.0%) above the state average for the most recent two (2) consecutive years for which statistics are available: Tex. Loc. Gov t Code 501.108. 17
Port Arthur Provision (cont d): project includes expenditures found by the board of directors to be required or suitable for infrastructure improvements necessary to develop and revitalize areas in the corporation s authorizing municipality, including: streets and roads, rail spurs, water and sewer utilities, electric utilities, gas utilities, drainage, site improvements, and related improvements; telecommunications, data, or Internet improvements; or facilities designed to remediate, mitigate, or control erosion, including coastal erosion along the Gulf of Mexico or the Gulf Intracoastal Waterway. This particular provision expires September 1, 2017. 18
Type B corporations whose revenue is less than $50,000: Land, buildings, equipment, facilities, and improvements found by board of directors to be required or suitable for the development, retention, or expansion of business enterprises provided: Has not collected $50,000 or more preceding two fiscal years; and City Council authorized the project by adopting a resolution following two (2) separate readings conducted at least one week apart. Tex. Loc. Gov t Code Ann. 505.156. 19
14. PERMISSIBLE TYPE B PROJECTS Type B corporations located in a city with a population of less than 20,000: Land, buildings, equipment, facilities, expenditures, targeted infrastructure, and improvements found by board of directors to promote new or expanded business development. Expenditure of more than $10,000: City Council adopts a resolution authorizing the project after giving the resolution at least two (2) separate readings. Tex. Loc. Gov t Code Ann. 505.158. 20
15. PERMISSIBLE TYPE B PROJECTS Type B corporations located in a landlocked community located in Harris or Dallas County: The term landlocked community - city located wholly or partly in a county with a population of 2 million or more - has within its city limits and ETJ less than 100 acres that can be used for the development of manufacturing or industrial facilities. Project is defined to mean expenditures found by the board of directors to be required for the promotion of new or expanded business enterprises within the landlocked community. Tex. Loc. Gov t Code Ann. 505.157. 21
22 16. What are Permissible Type A Projects? (cont d) Type A corporations located in a city with a population of less than 7,500 and has a Type B corporation City Council by ordinance may authorize or revoke authorization of a Type A corporation to undertake Type B projects. Tex. Loc. Gov t Code Ann. 504.171.
18. What is a Primary Job? In 2003, the Texas Legislature required most Type A or Type B projects create or retain primary jobs. The term primary job means a job that is... available at a company for which a majority of the products or services of that company are ultimately exported to regional, statewide, national, or international markets infusing new dollars into the local economy; and is included in one of nearly sixteen (16) NAICS sector codes 23
18. WHAT IS A PRIMARY JOB? The NAICS sector code categories include: crop production; animal production; forestry and logging; commercial fishing; support activities for agriculture and forestry; mining; utilities; manufacturing; wholesale trade; transportation and warehousing; information securities, commodity contracts, and other financial investments and related activities; scientific research and development services; management of companies and enterprises; Telephone call centers; correctional institutions; and A job included within National Security sector number 928110. 24
20. Sales Tax Proceeds for Promotional Purposes? Both Type A and Type B corporations may spend no more than ten percent (10%) of the corporate revenues for promotional purposes. Texas Attorney General Opinion GA-0086 (2003) promotional purpose is a question of fact for the board of directors to resolve in the first instance; the City Council could approve or disapprove of a particular promotional expenditure; the Attorney General noted a corporation may not spend more than ten percent (10%) of its current annual revenues for promotional purposes in any given year. Yet, unexpended revenues specifically set aside for promotional purposes in past years may be expended for such purposes. 25
A corporation may spend tax revenue received under this Act for job training offered through a business enterprise only if the business enterprise has committed in writing to: create new jobs that pay wages that are at least equal to the prevailing wage for the applicable occupation in the local labor market area; or increase its payroll to pay wages that are at least equal to the prevailing wage for the applicable occupation in the local labor market area. Tex. Loc. Gov t Code Ann. 501.162. 26
21. JOB TRAINING (CONT D) Type A and Type B corporations in a city with a population of 10,000 or more, located in a county bordering the Gulf of Mexico or the Gulf Intracoastal Waterway, and has, or is included in a metropolitan statistical area of this state that has, an unemployment rate that averaged at least two percent (2.0%) above the state average for the most recent two (2) consecutive years for which statistics are available, may spend sales tax revenue for job training that consists of: (1) providing job-related life skills sufficient to enable an unemployed individual to obtain employment; and (2) providing job training skills sufficient to enable an unemployed individual to obtain employment. TEX. LOC. GOV T CODE ANN. 501.163. 27
22. Can Type A or Type B corporations expend sales tax proceeds for training seminars? Type A and Type B corporations are required to complete a training seminar every 24 month period. City officials 1 of the 3 must complete the training city attorney, city secretary, city administrator (city manager); EDC officials executive director or other person who is responsible for the daily administration. EDC s may use sales tax proceeds to pay for the training. Comptroller can impose $1,000 penalty for failure to attend training. 502.101 to 502.103.
23. Can Type A or Type B corporations grant or gift Type A or Type B proceeds to a business entity without a performance agreement? Must enter into a performance agreement with the business enterprise. Performance agreement must contain the following: schedule of additional payroll or jobs to be created or retained, schedule of capital investment to be made, and specify the terms for any repayment. Tex. Loc. Gov t Code 501.158. 29
47. Who Administers and Oversees a Type A or Type B Sales Tax? Type A or Type B sales tax are administered by nonprofit corporations. Corporations are governed by the Development Corporation Act, Chapters 501 to 505 of the Texas Local Government Code, and Texas Non-Profit Corporation Act. The corporations through a board of directors determine which projects to fund. City council retains approval authority over all expenditures of the corporation. 501.073(a) and 501.054(b)(2). 30
49. Does City Council have to Approve Expenditures for Permissible Type A and Type B Projects? The Type A or Type B corporation has the power to expend the sales tax revenue. Yet, city council retains authority to approve all programs and expenditures of a corporation. 501.073(a). City council s oversight includes the authority to approve promotional expenditures as well. Op. Tex. Att y Gen. No. GA-0086 (2003). 31
53. DOES CITY COUNCIL APPOINT THE DIRECTORS OF THE TYPE A AND TYPE B CORPORATION? Type A board of directors consists of at least five (5) directors. Type B board of directors consists of seven (7) directors. Both Type A and Type B board members are appointed by City Council and can be removed with or without cause. 32
57. WHO RECEIVES THE TYPE A OR TYPE B SALES TAX PROCEEDS? State Comptroller remits Type A and Type B sales tax proceeds to the city. The city upon receiving its local sales tax allotment from the Comptroller must remit the sales tax to the Type A or Type B corporation. 504.301 and 505.301. 33
60. How Long a Term do Type A and Type B Board of Directors serve? Type A board of directors serve a term not to exceed six (6) years. 504.051(c). Type B board members serve a two (2) year term. 505.051(b). 34
62. Can a Type A or Type B director be reappointed to a subsequent term? The Attorney General concluded Type A board member could be reappointed to a subsequent term, absent any contrary provision in the articles of incorporation or bylaws, or in a city charter, ordinance or resolution of the city. - Op. Tex. Att y Gen. No. JC-0349 (2001).
64. Who determines which board members serve as president, secretary and other officers of the corporation? The board of directors appoint the officers to serve as president, secretary, and other officers. - Tex. Loc. Gov t Code 504.052 and 505.053. 36
65. How long a term do the President, Secretary and other officers serve as an officer? One term as officer is the term provided for in the certificate of formation or bylaws. But, one term cannot exceed three (3) years. If the certificate of formation or bylaws do not address the term of office, the officers are elected annually. Tex. Loc. Gov t Code 501.065(b). 37
66. Must a Type A Board Member be a Resident of the City? The Development Corporation Act does not require a Type A director to be a resident of the city. 38
67. Must a Type B Board Member be a Resident of the City? City with a population of 20,000 or more, o must be a resident of the city. City with a population of less than 20,000, o must be a resident of the eligible city; o a resident of the county in which the major part of the area of the eligible city is located; or o reside at a place that is within ten (10) miles of the eligible city s boundaries and is in a county bordering the county in which the major part of the area of the eligible city is located. Tex. Loc. Gov t Code 505.052. 39
68. CAN CITY COUNCIL MEMBERS SERVE AS DIRECTORS ON THE TYPE A OR TYPE B CORPORATION? The Act provides that three (3) of the seven (7) directors may not be employees, officers, or members of the governing body of the eligible Type B city. 505.052(c). The Development Corporation Act does not address whether council members may serve on the Type A board. In Texas Attorney General opinion JC-0547 (2002), the Attorney General noted service on the board of directors is not a public officer. Accordingly, such dual service on the Type A board would not violate the common-law doctrine of incompatibility nor dual office holding. 40
70. What Constitutes a Quorum of the Type A or Type B Board of Directors? A majority of the board constitutes a quorum. Type A: Generally, three (3) members of a five (5) member Type A board constitute a quorum. 504.053. Type B: Four (4) members of the seven (7) member Type B board constitute a quorum. 505.054. 41
73. Are the Board Meetings of Type A or Type B Board Subject to the Open Meetings Act? Type A and Type B corporations are subject to the Open Meetings Act. 501.072. All meetings of the Type A or Type B board must occur within the city limits. Exception: Type A s and Type B s located within a county with a population of less than 30,000 may conduct meetings within the county. 504.054 and 505.055. 42
75. Are Type A and Type B Corporations Subject to the Public Information Act? 43 Both Type A and Type B corporations are subject to the Public Information Act. 501.072.
- Are authorized to adopt and amend bylaws not inconsistent with: - certificate of formation; or - state law. - Amendments to the bylaws must be approved by resolution of the City Council. - Tex. Loc. Gov t Code 501.064(c). 44
Economic Development Corporation Report Section 502.151 of the Texas Local Government Code provides the following: Requires all Type A & Type B s to submit an annual report to the State Comptroller s Office The report must be submitted by February 1 each year $200 penalty failure to file Comptroller must report to Legislature in even numbered years. 45