What investments qualified for the former Texas enterprise-zone deduction, and could property placed in service before project designation count?

Plain-English summary

Qualifying enterprise-zone assets had to be depreciable, placed and used in the zone, and tied to a designated enterprise project; Rule 3.561 allowed a 90-working-day lookback before designation.

Section 171.1015 reduced apportioned taxable capital or earned surplus for capital investment in the enterprise zone where a designated enterprise project was located.

The letter listed the investment requirements:

• eligible for federal income-tax depreciation;
• placed in service in the enterprise zone;
• used in the normal course of business in the zone during the report's accounting year; and
• not removed from the zone except for repair or maintenance.

Although the statute described post-designation investment, Rule 3.561(b)(6) extended eligibility to otherwise qualifying property placed in service up to 90 working days before the designation date.

Buildings, leasehold improvements, computers, furniture, and equipment could qualify to the extent each item satisfied the statutory and rule criteria.

The discovery title mentions a September 1, 2001 distinction, but the ruling body does not discuss it. This page does not infer one.

Currency note: This deduction arose under the former franchise tax. Confirm current enterprise-zone or successor incentive law.

What this means for you

Designated enterprise projects

Asset type alone was not enough. Depreciability, placement, business use, zone retention, and timing all mattered.

Tax professionals

The historical rule provided a limited 90-working-day pre-designation window, not an unrestricted lookback.

Common questions

Q: Could buildings and computers qualify?
A: Yes, if they met all statutory and rule requirements.

Q: Could pre-designation property count?
A: Yes, if placed in service no more than 90 working days before designation and otherwise qualified.

Q: Did the body discuss September 1, 2001?
A: No.

Citations and references

• Texas Tax Code Sec. 171.1015
• 34 Tex. Admin. Code Sec. 3.561(b)(6) and (g)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9905782L

Original ruling text

May 24, 1999

Dear **:

Thank you for the information contained in your letter of May 5, 1999
concerning capital investments in a Texas Enterprise Zone. This response
represents the franchise tax guidelines applicable to the enterprise zone
deduction.

The Texas Tax Code provides for a reduction of a corporation's apportioned
taxable capital or apportioned earned surplus for its capital investment in an
enterprise zone in which the enterprise project is located. This provision
applies to corporations that have been designated as an enterprise project
under the Texas Enterprise Zone Program. Section 171.1015, Texas Tax Code.

The Tax Code does not provide a definition of "capital equipment or other
investments." As you noted, the statute does specify that the investment
qualify for depreciation for federal income tax (FIT) purposes. In addition,
the investment must be placed in service in the zone after the corporation
received its designation as an enterprise project, and the investment must be
used in the normal course of business in the enterprise zone during the
accounting year on which the report is based. The investment cannot be removed
from the enterprise zone, except for repair and maintenance.

Franchise Tax Rule 3.561(b)(6) does define "qualified investment" for purposes
of the enterprise zone deduction. This definition applies the above-stated
criteria to establish eligibility for qualifying capital equipment or other
investment. The rule provision does extend eligibility to qualifying
investments placed in service in the enterprise zone 90 working days prior to
the designation date. Subsection (g) of Rule 3.561 provides examples of this
application.

You have asked about buildings, leasehold improvements, computers, furniture,
and equipment as qualifying for the enterprise zone deduction. To the extent
the property in question meets the statutory/rule criteria (subject to
depreciation for FIT purposes, placed in service in the zone, used in the
normal course of business), the investment should qualify for the enterprise
zone deduction.

This response is based on the facts presented. If there are different or
additional facts, the response may change.

If you have any questions, please call toll-free 1-800-531-5441, extension
3-4496 or (512)463-4496.

Sincerely,

Jerry Bobbitt
Tax Policy Division