“SUPER FREEPORT” DEADLINE APPROACHES, CAUSES SOME CONFUSION
"Super Freeport" is a property tax exemption for goods that reside temporarily in warehouses within a city while awaiting shipment to other locations within or outside of Texas (as contrasted with the current-law freeport exemption, which covers only goods shipped outside of Texas). This exemption was approved by Texas voters in 2001 as an amendment to the Texas Constitution, but only this year did the Texas Legislature enact enabling legislation.
The super freeport exemption is best described as a local option property tax exemption of the "opt-out" variety. The exemption automatically applies to a city unless the city does each of the following two things no later than December 31, 2007: (1) holds a hearing at which members of the public are allowed to speak for or against the taxation of super freeport goods; and (2) adopts an ordinance stating it wishes to continue taxing super freeport goods for tax year 2008. The hearing must take place prior to the adoption of such an ordinance.
A city that misses the December 31, 2007, deadline may choose to opt out of the exemption in future tax years.
The exemption applies only to goods that are owned by someone other than the owner of the warehouse where the goods are temporarily stored. Some appraisers in Texas are predicting a large fiscal impact for this exemption based on the theory that retailers who currently own their own warehouses may be tempted by the language of the exemption to sell their warehouses to third-party "shell" corporations. Once ownership is thus separated, the theory goes, the retailer could claim the exemption at warehouses that essentially remain under the control of the retailer, which is not in keeping with the economic development spirit of the bill. To further complicate matters, the bill that passed this year is arguably broader than the constitutional amendment adopted by voters in 2001: the amendment prohibits the exemption where the warehouses are owned or controlled by the owner of the goods, while the 2007 bill omits the language relating to control.
As a result of this confusion, the Senate sponsor of the 2007 legislation has asked for an attorney general's opinion regarding the scope of the bill in relation to ownership and control. It is possible that the opinion could be released in time for taxing entities to consider it prior to the December 31, 2007, deadline to act. TML will send out an alert if and when any clarifying opinion is released.
TML takes no position on whether a city should or should not opt out of the super freeport tax exemption. Just like the freeport exemption of the past, super freeport will be viewed by some cities as a useful economic development tool, while others will view it as an annoying loss of revenue.