Does a Texas business in a federal empowerment zone qualify for strategic investment area franchise-tax credits?

Plain-English summary

In a letter signed by the Texas Comptroller, a business asked the agency to confirm that a company located in a federally designated empowerment zone is eligible for strategic investment area (SIA) franchise-tax credits. The Comptroller agreed.

• What an SIA includes. The definition of a strategic investment area in Tax Code Sec. 171.721 covers, among other areas, one that is federally designated as an urban enterprise community.
• Empowerment zone is a subset. A federal empowerment zone is a subset designation of a federal urban enterprise community. Texas's enterprise-zone enabling statute had been updated to recognize an empowerment-zone designation as a subset of the federal enterprise community program.
• The conclusion. The Comptroller reviewed the matter with staff and agreed that an empowerment zone is a subset of the enterprise community program, so a reference to a federal enterprise community can include areas federally designated as an empowerment zone. A business located in a federal empowerment zone therefore satisfies the SIA eligibility language.

Currency note: SIA credits belong to the pre-2008 franchise tax, replaced by the current margin tax (House Bills 3 and 3928) effective January 1, 2008. Treat this as historical; confirm any current incentive separately.

What this means for you

Businesses siting in distressed areas

If your location fell within a federal empowerment zone, you did not lose SIA eligibility just because the statute named "urban enterprise community." The Comptroller read the enterprise-community reference to include empowerment zones as a subset.

Accountants and tax professionals

The reasoning is a nesting of federal designations: empowerment zone ⊂ urban enterprise community, which is inside the Sec. 171.721 SIA definition. This is a taxpayer-specific determination on the old SIA credits, so it is historical guidance under the pre-margin-tax regime.

Common questions

Q: Is a business in a federal empowerment zone eligible for SIA franchise-tax credits?
A: Yes. The Comptroller treated a federal empowerment zone as a subset of a federal urban enterprise community, which is within the SIA definition in Sec. 171.721.

Q: Do these SIA credits still exist?
A: No. They were part of the pre-2008 franchise tax and are not part of the current margin tax.

Citations and references

Statutes:

• Tex. Tax Code Sec. 171.721 (definition of a strategic investment area)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200409839L

Original ruling text

September 10, 2004

Dear **:

I appreciated receiving your letter regarding the franchise tax credits for
Strategic Investment Areas (SIA) and also thoroughly enjoyed the opportunity to
visit recently with you, INDIVIDUAL A, and INDIVIDUAL B.

As I have noted before, Texans will gain an estimated $** in
general revenue over the first three fiscal years by ** having
chosen CITY as their new location. Your plant will have a positive economic
ripple effect throughout Texas and will help strengthen our tax base to support
essential programs for our children.

In your letter, you asked that I affirm that a business located in a federally
designated empowerment zone is eligible for SIA franchise tax credits. As you
point out, the definition of SIA is found in Texas Franchise Tax Code Section
171.721. One of the areas included in the statutory definition of an SIA is an
area that is federally designated as an urban enterprise community. Your letter
notes, however, that the CITY site is actually located within a federal
empowerment zone, which is a subset designation of a federal urban enterprise
community. You contend that your location within a federal empowerment zone
satisfies the current eligibility language of the SIA statute and point to the
fact that the enabling statute for Texas enterprise zone program was updated
last session to recognize an empowerment zone designation as a subset of the
federal enterprise community program.

I have reviewed this matter with my staff and agree that an empowerment zone is
a subset of the enterprise community program and reference to a federal
enterprise community can include areas federally designated as an empowerment
zone.

If you need any additional information, please contact Mike Reissig, my
director of Tax Administration, by e-mail at [email protected] or by
phone at 1-800-531-5441, extension 3-4260.

Thanks again for writing. Please let me know if I can be of further assistance.

Sincerely,

Carole Keeton Strayhorn
Texas Comptroller

c: Mike Reissig