How to Use the Freeport Exemption to Slash Property Taxes in Texas

Read Time: 6 min

How to Use the Freeport Exemption to Slash Property Taxes in Texas

Texas doesn't have a state income tax, but it more than makes up for it with some of the highest property taxes in the country—including taxes on business personal property (BPP) like inventory. For companies moving physical goods, especially those sold out of state, these taxes become a recurring drag on cash flow and margins.

That's where the Freeport Exemption comes in. If your inventory is eligible and shipped out of Texas within a specific timeframe, you could wipe that tax liability off your books entirely. If you're not using this exemption, you're lighting money on fire.

Why Freeport Exemptions Exist and Why It Matters More Than Ever
The Freeport Exemption was created under Article VIII, Section 1-j of the Texas Constitution to help the state compete in manufacturing and distribution. It eliminates property taxes on inventory that leaves Texas within 175 days.

• It differs from the Goods-in-Transit Exemption, which requires third-party warehousing.
• Freeport is more flexible and typically far more powerful.
• Unlike other exemptions, Freeport directly boosts your bottom line if you move goods fast.

Strategic Business Moves: Freeport as a Weapon
Innovative companies don't just comply with Freeport—they build a strategy around it.

Inventory & Site Selection
● Place qualifying inventory in Freeport-friendly jurisdictions
● Some cities voluntarily opt in to attract your business

What Smart Companies Do
● Centralize out-of-state inventory in Freeport zones
● Set up ERP systems to tag Freeport-eligible items
● Run quarterly audits on inventory and shipping dates

Tax Planning Integration
● Fold Freeport into your annual tax strategy and logistics playbook.

Every Freeport-eligible item you don't file is money left on the table.



Who Qualifies for the Freeport Exemption?
Not every business gets to tap into Freeport. But if you're in the business of moving product—especially across state lines—there's a high probability you're eligible. Here's how to know if you qualify:

You Likely Qualify If You:
● Manufacture, assemble, fabricate, warehouse, or distribute goods
● Store inventory in Texas
● Ship it out of state within 175 days

Eligible Inventory Includes:
● Raw materials and components
● Work-in-process (WIP)
● Finished goods destined for out-of-state sale

Important:
Inventory must be physically in Texas and shipped out within 175 days.
Identify now if your business qualifies for Freeport Exemptions with a free property tax analysis. Get Started.

Key Property Tax Requirements You Can't Overlook
Qualifying for Freeport is just the beginning. You have to hit every compliance target—on time and with airtight documentation—or you risk losing the exemption entirely. Here's what you need to get right:

The 175-Day Rule
Qualifying inventory must be shipped out of Texas within 175 days of acquisition or manufacturing. Miss that? You're done.

You Need to Track and Prove:
● Inventory turnover reports
● Shipping records
● Receipts/invoices showing the date of acquisition or production

Don't do the following:
● Count inventory that's staying in Texas
● Rely on vague or incomplete documentation
● Miss the April 30 filing deadline

Common Challenges with Freeport Exemption and How to Crush Them
Just because you're eligible doesn't mean the system will make it easy. CADs push back, documentation gets messy, and audits happen. Here's how to bulletproof your exemption:

CAD Pushback
Some appraisal districts make this hard on purpose. Be ready to defend every line item.

Documentation Discipline
● Use ERP or inventory software to tag qualifying inventory
● Sync logistics and accounting systems
If your inventory system can't tag '175-day out-of-state eligible' items, you're flying blind.

If You're Audited or Denied:
● File a fast appeal with the Appraisal Review Board (ARB)
● Provide additional documentation
● If needed, hire a pro who is knowledgeable about the intricacies of the job

Legal and Legislative Updates
The Freeport Exemption isn't static. Laws evolve, CADs get more aggressive, and compliance standards tighten. Stay ahead of the curve by tracking these updates:

Current Status (2023-2025)
There have been no significant changes, but state legislators revisit exemption categories often. Most business owners aren't watching this, so stay alert.

The trend to Watch:
CADs are tightening standards. Incomplete documentation gets denied.
Don't assume stability. Legislative creep is real.

Bring in a Property Tax Consultant (Unless You Like Audits)
You can do it alone—but that doesn't mean you should. Filing Freeport Exemptions correctly takes expertise most companies don't have in-house. A top-tier consultant protects your upside and your sanity:

What They Do:
● Navigate CAD bureaucracy
● Defend you during audits
● Structure documentation to survive scrutiny
● Handle multi-county filings

When to Hire:
● Ideally before the April 30 deadline
● Immediately if you've been denied or audited
● However, you can still obtain 90% of the benefits if you file by June 15th

How to Vet:
● Ask for their Texas Property Tax Consultant License
● Get references from manufacturers or distributors
● Confirm Freeport-specific success rate

A good consultant doesn't cost you—they print you money.

What’s Your Next Step?

If you store inventory in Texas and ship it out of state, you owe it to your business to take advantage of the Freeport Exemption. Stop bleeding cash. Get aggressive. File smart. The tax man isn't going to do this for you. Start today.

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