Texas Jobs, Energy, Technology & Innovation Act (JETI) Adopted Rules Update

The Jobs, Energy, Technology & Innovation (JETI) Act, under Chapter 403, was signed into law on June 8, 2023, replacing the Texas Economic Development Act, known as Chapter 313. The JETI Act helped Texas remain competitive from an economic development perspective by continuing to abate a portion of school district property tax millage for eligible projects. While the passage of the JETI Act was viewed as a success, the new program is quite different from its predecessor and left many with unanswered questions requiring further clarification. Thus, the Texas comptroller submitted adopted rules to the register and this blog provides an update regarding some of those ambiguities. 

Comparison of JETI Act and Texas Economic Development Act

The following chart summarizes some of the key differences between the two programs as passed via House Bill 5: 

An explanation of a few significant differences between the two programs can be found in our prior blog: Texas Economic Incentives: Jobs, Energy, Technology & Innovation Act.

Clarification of JETI requirements 

After the passage of House Bill 5, many comments were subsequently submitted to request clarification of key terms under the JETI Act. One of the most instrumental resources in this process was the Texas Taxpayers and Research Association (TTARA). After providing comments, TTARA helped to summarize the comptroller’s position and the adopted rules. Some key takeaways are:

• For purposes of the agreement holder, a “business entity” was clarified to mean a “person” under Texas Government Code Section 311.005.
  
  
• A full-time job is determined based on position rather than an individual employee.
  
  
• A “required job” must be a new full-time job in the state and must be performed by an employee hired by the applicant, or by an independent contractor or independent contractor’s employee, primarily at the designated project site, allowing for hybrid work schedules but excluding 100% remote work.
  
  
• As it relates to the wage requirement: the adopted rule states that for all jobs in the applicable industry sector as computed by the Texas Workforce 
  Commission in the Quarterly Census of Employment and Wages and as described in the executed agreement under Government Code, §403.612, a wage for a job in a specified sector is determined by considering the average annual wage data available during the most recent four quarters. If county-level data exists, the wage in a specified industry must exceed 110% of the county average annual wage, giving priority to six-digit North American Industry Classification System (NAICS) level, followed by five-digit NAICS level, and then four-digit NAICS level. If county data is unavailable, the same evaluation is performed on regional data. In the absence of both county and regional data, statewide average annual wage must be utilized.
  
  
• Finally, as it relates to the performance bond requirement, the bond amount as the rule is adopted is 10% of the estimated gross tax benefit to the applicant.

Perhaps the most ambiguous requirement remains the performance bond. If this requirement is created by statute to protect the interests of the state and school district, then it matters what those actual interests are and how the performance bond can compensate for those interests. As such, 10% of the gross tax benefit seems a bit arbitrary and not necessarily directly related to actual damages. In addition, a bond is a substantial additional cost associated with the benefits and multiple bonds may be needed depending on the term. It remains to be seen how much of the terms of the bond, etc., aside from the 10%, will be negotiable via the agreement drafting phase.

Conclusion

While this new incentive program is viewed as replacing Chapter 313 which expired on December 31, 2022, it is a sharp turn from the prior program. The JETI Act is likely not as lucrative as the prior program and not as accessible to companies. Moreover, with the elimination of supplemental payments to the school district and limits on application fees, one may question the school districts’ motivation to entertain such an incentive. The comptroller started accepting applications on January 18, 2024, and we are eager to continue watching this new program unfold and evolve.

Please reach out to Kelley Rendziperis to discuss if your project may qualify for this new program.

Source: Texas Taxpayers and Research Association (TTARA)