The Round Rock Chamber of Commerce is pursuing a plan to convince Round Rock ISD board of trustees to vote to exempt a little-known tax on standing inventory. If the district were to exempt the tax the move would be irrevocable.

Chamber President Mike Odom said exempting the tax, called the freeport tax, would help Round Rock attract businesses to the area.

The freeport tax is a tax on standing inventory that is mostly associated with manufacturers. According to the chamber, three companies, out of 40 in the district paying the tax, make up more than half of the freeport revenue for the district—Flextronics, Dell and Hospira.

The chamber commissioned a study about the exemption and its potential impact through Moak, Casey & Associates, a school finance research firm.

"I am convinced [the exemption] is particularly important for manufacturing," said Dan Casey, a partner at Moak, Casey & Associates. "We are one of the few states that still taxes inventory in some fashion."

The state started allowing the tax exemption in 1990. The city of Round Rock and Williamson County both exempt the tax. If the district grants the exemption, the area would be known as triple freeport–tax exempt, Odom said.

Odom said more districts and taxing entities around Round Rock have been granting the exemption, making it tougher for the chamber to attract manufacturing businesses. For example, Hutto, Pflugerville and Leander ISDs are all nearby school districts that exempt the tax.

According to the report compiled by Moak, Casey & Associates, there were 56 Texas school districts that granted the exemption in 1993, but by 2013 there were 182.

"We have a number of projects right now that on the basis of our community—from the business climate, to the workforce, to transportation—it would be very easy for us to win that project," Odom said. "[Those companies] now have to find a way to overcome a fairly significant tax liability that places on either side of us don't have."

Odom said the chamber could attract more businesses and more revenue for the district if the exemption were to be granted.

"We don't want to do anything that would harm the district," Odom said. "We feel very strongly, based on our track record of economic development work, that without [the tax] we can far exceed the dollars that the school system will be exempting."

In the short term the chamber has a plan that Odom said will make exempting the tax revenue-neutral or close to it for the district.

Odom said the plan would involve the 40 companies in the district currently paying the tax to reimburse the district's lost revenue for a period of five years. In the first year that payment would be about $5.9 million, or the entirety of the lost revenue associated with the freeport tax, according to the report.

Because of the way the state school funding formula works, after the first year much of the lost revenue would be compensated by the state, Casey said.

For the next four years the companies in the agreement would pay the revenue lost by the exemption associated with debt service on bonds, or about $1.46 million a year, which the state formula does not take into account.

Odom said tax revenue from new companies would "more than" compensate the district after the five-year agreement ends.

RRISD released a statement saying the district is collecting additional information regarding the exemption proposal, and the board will continue working with the administration and chamber to determine the best solution.

At the Jan. 15 RRISD board meeting trustee Terri Romere said the plan seems like a win/win, but said she wondered if five years was long enough. Casey said the five-year payout plan is one of the longest his firm has seen.

Odom said moving forward the chamber will focus on getting the 40 companies to join the payment-in-lieu-of-taxes agreement. He said the chamber has had informal conversations with some companies, and they seemed receptive to the idea.

Odom said the chamber is awaiting direction from the board of trustees to commence the informal conversations. The chamber's board of directors voted to support the exemption Feb. 26, saying the tax hurts economic development in the area.