Starting a Business in Texas
Texas has one of the biggest economies in the country, second only to California. It is usual to hear that things are always larger in the Lone Star State. Texas has one of the best all-around pro-business environments in the nation. It has a favorable tax climate (no individual or corporate income tax) low unemployment, a common sense regulatory system (although business licenses can be tedious), and access to funding. It is no wonder that companies such as American Airlines, Dell, AT&T, and Tenet Healthcare call it home. Texas businesses have access to a plethora of incentive programs that can provide them much needed capital to succeed. The most common are incentives that are given through tax credits, Sales Tax Exemptions, grant/loan programs, and benefits to companies who reside inside a Texas Enterprise Zone.
STEPS TO STARTING A BUSINESS IN TEXASAfter starting a business in Texas, you will want to do certain things in order to move forward appropriately. The Texas Secretary of State is where you would go to look up a company name and create your business entity. After your company is formed, a common task that is usually performed first is getting a Federal Tax ID Number. This number is not to be confused with a State Tax ID Number which is issued by the Texas Comptroller. With the federal number you could do things such as applying for business credit and leasing commercial office space. Another core activity you would want to perform is registering online for a Texas Sales and Use Tax Permit. After other business organizational requirements have been fulfilled, you may do other things such as look up a Texas sales tax rate, see the status of Form AP-201, set up company payroll, open up a business bank account, and research which are the correct Business Licenses you need to run things. Texas businesses can benefit from these programs to help them expand. Here is a selection of the top business incentive programs offered in Texas:
- Texas offers a property tax abatement of sales tax to companies that have a qualified data center. Sales tax abatements are given to any data center support equipment, computers, software, and electricity that is used in daily operations. A minimum investment of $250 million is required to qualify for abatements for the 15 year abatement. To qualify for abatements a seller’s permit must be obtained.
- The Product Development Investment Fund Program gives loans to small businesses in Texas. The loans are meant to help a company develop and produce new or existing improved products. Loans are backed by assets of the company and are given when traditional financing becomes difficult. Loans can be used for a wide array of operating expenses and capital expenditures.
- The Texas Enterprise Zone Program provides various tax benefits to incentivize businesses to invest in economically distressed zones within Texas. Qualified expenses are eligible for a sales and use tax refund. The objective is to lower the sales tax burden for businesses, stimulate investment, and bring growth to these distressed areas. The amount of the refund is based off the amount of jobs that are created as well as the total capital budget. This equates to refunds between the amounts of $20,000-$4,000,000 per year.
- The Texas Enterprise Fund is a program that offers cash grants to businesses that will start a project within Texas instead of selecting an out of state option. Grants are given to offset the capital costs of workforce expansion. This could in turn benefit a variety of job applicants including those with disabilities and those with long term unemployment.
- Texas Sales Tax Exemptions are given to any manufacturing company for equipment or machinery, including parts and components that are used in operations:
- Additionally, any repairs required for this machinery are generally exempt from sales and use tax. Raw materials and components of most manufactured products are also exempt from sales tax.
- Energy consumption such as fuel, electricity, and natural gas used at a manufacturing company is also exempt from sales and use tax. As long as half of the energy consumed in the creation of the tangible personal property changes the final product.
- An eligible research project can qualify for a sales and use tax exemption on tangible personal property that is depreciated. This includes purchase or rental of such property that is used in the eligible research process.