Texas Freeport Exemption

Texas Freeport Property Tax Exemption

In 1989 Texas voters approved a constitutional amendment giving local property tax jurisdictions the option to exercise or not exercise, their authority to tax specific personal property, otherwise known as freeport goods.  The freeport exemption exempts certain types of tangible personal property for taxation, generally inventory, raw material, goods in process, or stored goods in transit.  To quality the property must meet the following criteria:

  1. Acquired in or imported into Texas to be forwarded out of state.
  2. Detained in Texas for assembling, storing, manufacturing, processing, or fabricating purposes by the person who acquired or imported it.
  3. Transported out of state within 175 days after the date the person acquired it, or imported it, into the State of Texas.

Oil, natural gas, and other petroleum products were excluded from eligibility of the exemption and remain taxable.

The application and qualification process is very simple and straightforward.  The amount of freeport tax exemption for goods received each year is based on the percentage of qualified freeport goods sold in the previous calendar year.  A one page application must be filed with the appraisal district of the county where the goods are located and requests that a company provide information to identify qualified freeport good sold in the previous calendar year.  The application must be filed between January 1st and May 1 of each tax year.  A late application may be accepted up until roll certification subject to a 10% penalty.  Most appraisal districts require documentation be submitted to prove the goods do qualify for the exemption.  Companies rely on internal sales reports, customer lists, financial statements etc to meet documentation requirements.  The ability to track the goods from acquisition to disposition or shipment out of state is very important.

For example, a company which manufactures oilfield equipment has an inventory value of $2,000,000 and shipped 70% of their product out of state within 175 days in the previous year would receive an exemption on inventory of 70% for the tax year with jurisdictions that allow the freeport exemption.  If the cumulative tax rate for those jurisdictions was 2% the resulting savings would be $28,000.

If you manufacture, store, sell or distribute goods in Texas and ship out of state you should take advantage of this exemption and take advantage of the significant savings.  If the application or documentation process seems daunting or time is an issue Assessment Advisors can help.  Our agents have over 20 years experience dealing with freeport exemptions and inventory valuation issues.