A Foreign Trade Zone (FTZ) is an area within the United States that is designated by the federal government as outside of U.S. Customs territory. FTZs encourage investment in the U.S. and the creation of American jobs by allowing U.S. businesses to operate with equivalent customs treatment to business conducted offshore. Businesses using FTZs can reduce customs duties and fees and achieve logistics benefits for the import and export of goods. FTZs can be an effective part of a community economic development program.
Round Rock is served by FTZ 183, which was established in the 1990s to capitalize on the growth of the high-tech industry and to provide local businesses with a tool to help them compete in the global economy. The Foreign Trade Zone of Central Texas, Inc. is the grantee of FTZ 183 and is run by a board of directors appointed by the cities and chambers in the Austin metropolitan area.
In July 2012, the Foreign Trade Zone of Central Texas received approval from the federal government to operate under new, streamlined procedures designed to make U.S. businesses more competitive. Under the approval, all of Round Rock has been preapproved by the federal government as eligible FTZ property. With the concurrence of local officials, the federal government will provide any eligible business in Round Rock FTZ designation on an expedited and simplified basis. This process historically takes more than a year and comes with incredible expense. In Round Rock, it can take less than forty-five days and modest expense.
Foreign Trade Zone and Freeport
There is quite a bit of overlap of the FTZ and freeport tax exemptions. Freeport exempts property tax for inventory that is held in Texas for up to 175 days. The FTZ exempts any item imported from outside the U.S., regardless of the ultimate destination, and there is no time restriction.
For example, inventory held in Round Rock for ninety days and then goes to Arkansas would be exempt under the freeport exemption, but not FTZ. Inventory imported into a Round Rock FTZ from Japan then sold to a customer in Fort Worth is exempt under FTZ, but not freeport. Practically speaking, for jurisdictions that have a freeport exemption, the incremental effect of the FTZ is to exempt inventory that has been imported from outside the U.S. and is destined for a Texas customer. All other inventory that might be exempt under the FTZ exemption is already exempt under freeport. And, of course, the freeport exemption applies to all property within the jurisdiction, while the FTZ exemption is site specific, applying only to inventory in activated FTZ space.
For more information about Texas Foreign Trade Zones, click here.