Texas manufacturers that process raw materials, components, or goods and ship finished products out of state can benefit from the Freeport property tax exemption. This exemption removes qualifying inventory — raw materials, work-in-process, and finished goods — from the local property tax rolls if the goods are shipped out of Texas within 175 days of being acquired or imported.
How Freeport Applies to Manufacturers
The Freeport exemption covers goods detained in Texas for assembly, storage, manufacturing, processing, or fabrication. For manufacturers, this typically includes:
- Raw materials: Steel, plastics, chemicals, lumber, and other inputs imported into Texas or purchased in Texas for manufacturing
- Work-in-process: Partially assembled or processed goods moving through the production line
- Finished goods: Completed products awaiting shipment to out-of-state customers
The 175-day clock starts when the goods are acquired in or imported into Texas. All three categories qualify as long as the goods (in their final form) leave Texas within that window.
Financial Impact
Texas has no state income tax, but local property tax rates are among the highest in the country. Combined rates in industrial areas often exceed 2.5%. For a manufacturer with $5 million in qualifying inventory, the Freeport exemption saves approximately $125,000 per year in property taxes.
- No cap on savings: The exemption applies to all qualifying inventory regardless of value
- Annual benefit: The exemption recurs every year as long as the manufacturer continues to qualify
- Scales with growth: As production volume and inventory levels increase, so do the tax savings
Local Adoption
The Freeport exemption must be adopted by each local taxing unit (city, county, school district). Most major manufacturing areas in Texas — including Houston, Dallas-Fort Worth, San Antonio, and El Paso — have adopted the exemption across multiple taxing units. However, coverage varies by specific location. Check with your county appraisal district to confirm which taxing units in your area have adopted the exemption.
How to Claim
- Verify that local taxing units have adopted the Freeport exemption
- File a Freeport exemption application with the county appraisal district (typically due by April 30)
- Maintain records proving that qualifying inventory moves out of Texas within 175 days of acquisition
- Calculate the Freeport-qualifying portion of inventory as of January 1 (the property tax assessment date)
Complementary Programs for Manufacturers
- Manufacturing sales tax exemption: Production machinery and equipment are exempt from Texas sales tax. Manufacturing exemptions guide.
- SBA 504 loans: For equipment and facility financing. SBA 504 guide.
- R&D tax credits: For manufacturers developing new products or processes. R&D for manufacturers.
- Property tax abatements: Property tax abatement guide.
Bottom Line
The Freeport exemption is one of the most impactful property tax incentives for Texas manufacturers that ship products out of state. Combined with the manufacturing sales tax exemption, R&D credits, and property tax abatements, Texas manufacturers can build a significant stack of tax incentives that reduce operating costs and improve competitiveness.
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