Texas Tax Incentives for Your Businesses

Paige Smith

Texas is known for having some of the lowest tax rates in the country, which makes it an appealing place for longtime business owners and aspiring entrepreneurs alike. If you own a business in Texas, there are a handful of state tax incentives you can apply for—so keep reading. 

Texas tax incentives for businesses

Sales Tax Exemption or Franchise Tax Credit for Qualified Research 

Texas’s Sales Tax Exemption or Franchise Tax Credit for Qualified Research gives businesses the choice to take a sales tax exemption or franchise tax credit for engaging in qualified research and development (R&D) activities. Qualified R&D activities must be part of an experiment designed to improve the function, performance, reliability, or quality of a component of the business. 

Businesses that take the sales tax exemption don’t have to pay sales tax on materials, software, or equipment they used for R&D purposes. Businesses that take the franchise tax credit get a credit on the amount of franchise tax they owe (with a 20-year credit carryforward), as long as they establish the credit by December 31, 2026. 

Learn more about how to claim the sales tax exemption or franchise tax credit here

Need to calculate sales tax? Use Gusto’s handy calculator

Tax Credit for Certified Rehabilitation of Certified Historic Structures 

Texas gives businesses a tax credit for undertaking a project to rehabilitate a certified historic structure within the state. If the structure and project qualify, businesses can get a tax credit for up to 25% of the eligible costs and expenses relating to the rehabilitation work.

The credit is available for franchise tax reports originally due on or after January 1, 2015 and for annual insurance premium tax reports due on or after January 1, 2018. To qualify for the credit, you need to meet these requirements: 

  • Find a certified historic structure placed in service on or after September 1, 2013
  • Have an ownership interest in the structure during the calendar year the structure was placed in service after the rehabilitation
  • Spend more than $5,000 in eligible costs and expenses on the rehabilitation project

To learn how to establish the credit, review these instructions from the Texas Comptroller.  

Texas Enterprise Zone Program

Texas’s Enterprise Zone Program is a state sales and use tax refund program that incentivizes job creation in economically distressed areas of the state. Companies that get approved for Enterprise Zone designations can apply for sales and use tax refunds on qualified project expenditures. Here are the four different types of projects:

  1. Half Enterprise Project: Requires a minimum $40,000 investment, has a $2,500 maximum refund per job allocated (with a maximum of 250 jobs total). 
  2. Enterprise Project: Requires a minimum $5 million investment, has a $2,500 maximum refund per job allocated (with a maximum of 500 jobs total). 
  3. Double Jumbo Project: Requires a minimum $150,000 investment, has a $5,000 maximum refund per job allocated (with a maximum of 500 jobs total). 
  4. Triple Jumbo Project: Requires a minimum $250,000 investment, has a $7,500 maximum refund per job allocated (with a maximum of 500 jobs total). 

To qualify for the Enterprise Zone Program, you need to receive an Enterprise Zone designation, meet the job creation and project investment commitments, and hire employees who meet certain Enterprise Zone requirements. Applications are due on the first days of March, June, September, and December. 

Learn more about how to apply here

Hiring in Texas? Here’s how much it actually costs

Franchise Tax Credit for Clean Energy Projects 

The Texas Franchise Tax Credit for Clean Energy Projects rewards businesses for investing in  up to three clean energy projects, which the government defines as projects that involve the construction of a coal-fueled, natural gas-fueled, or petroleum coal-fueled electric generating facility. 

Qualified businesses can get a credit for the lesser of $100 million or 10% of the total capital cost of the project, and they can carry the credit forward for no more than 20 consecutive years. 

Review this page to learn how to apply for the credit. 

Want to reduce your business’s energy use and become more sustainable? Here’s how

Local Texas solar incentives

There’s no state solar tax incentive for businesses in Texas, but many local governments and utility companies offer incentives and rebates for installing solar systems or other forms of renewable energy. Here are some notable programs: 

  • Oncor’s Commercial Solar Option program—which runs annually from January through November—gives qualified businesses incentives for installing solar photovoltaic systems in their commercial facilities. 
  • Austin Energy has two solar incentives—a performance-based incentive and a capacity-based incentive—for businesses that install solar systems on their properties. 
  • CenterPoint Energy gives incentives to approved contractors and service companies that install energy-efficient equipment in certain homes and facilities. 
  • AEP Texas has a SMART Source Solar PV Program (among other business programs) that rewards businesses for installing solar energy systems in their facilities. 

Tax incentives for electric cars in Texas

There are no state tax credits or incentives for purchasing or leasing an electric vehicle in Texas. However, some utility companies, like Austin Energy, offer rebates for installing EV charging stations at your business facility.

The Texas Commission on Environmental Quality did offer $2,500 rebates for purchasing an EV through the Texas Emissions Reduction Plan, but the program ended in January 2023.  

Here are some more ways to make your business environmentally sustainable

Texas city and county tax credits

Some Texas cities and counties have their own local tax credits and incentive programs for businesses. To check, visit your city or county’s website and browse around. You can see a list of county websites here

Sales and use tax exemptions

Though Texas only has a few business tax credits, the state has countless sales and use tax exemptions businesses can take advantage of. Here are some you might qualify for:

  • Property tax exemption
  • Franchise tax exemption
  • Medical or biomedical property tax exemption
  • Wind and solar energy tax exemptions
  • Sales tax exemption for media production and facilities
  • Sales and use tax exemption for machinery and equipment 
  • Texas Enterprise Zone program

To review the exemptions in detail, visit the Texas Business Incentives and Programs Overview guide

Financing resources for small businesses in Texas

If your Texas-based business needs more financial support, check out Gusto’s guide to grants and loans in the Lone Star State

And here are even more Texas business resources:

Paige Smith Paige is a content marketing writer specializing in business, finance, and tech. She regularly writes for a number of B2B industry leaders, including fintech companies and small business lenders. See more of her work here:
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