Economic Development Sales Tax Corporations

Voters in Texas cities have the option of imposing a local sales and use tax to help finance economic development efforts. Cities may adopt an economic development sales taxunder Section 4A or Section 4B of the Development Corporation Act of 1979. Chapters 501, 504 and 505 of the Local Government Code outline the characteristics of Type A and Type B economic development corporations (EDCs), authorize cities to adopt a sales tax to fund the corporations and define projects EDCs are allowed to undertake.

Type A EDCs are typically created to fund industrial development projects such as business infrastructure, manufacturing and research and development. Type A EDCs can also fund military base realignment, job training classes and public transportation. EDCs may use Type A revenue to fund land, buildings, equipment, facilities expenditures, and targeted infrastructure and improvements for projects that create or retain primary jobs.

Type B EDCs can fund all projects eligible for Type A, as well as parks, museums, sports facilities and affordable housing. However, Type B EDCs are subject to more administrative restrictions than Type A, such as public hearings and waiting provisions.

An EDC must enter into a written performance agreement with any business enterprise that it funds directly or makes expenditures that benefit an eligible project. At a minimum, the performance agreement must contain: a schedule of additional payroll or jobs to be created or retained; the capital investment to be made by the business enterprise; and the terms for repayment of the EDC’s investment if the business fails to meet the performance requirements specified in the agreement.

The Comptroller of Public Accounts identifies 4A and 4B Development Corporations in its list of cities that have adopted additional local sales and use taxes. Within the Austin metro, Cedar Park and Georgetown have both 4A and 4B corporations. Hutto, Jarrell and Taylor have 4A Development Corporations. Bastrop, Bee Cave, Buda, Elgin, Liberty Hill, Lockhart, Luling, Pflugerville, Rollingwood and Round Rock have 4B Development Corporations.