Texas Property Tax Consultant Practice Exam

Inventory temporarily located in Texas may qualify for Freeport Exemption if?

1. It consists of outdated items

2. It is temporarily located in Texas for less than 175 days

3. The owner is able to prove damage and obsolescence

4. The total amount on the company's balance sheet is less than $20,000

The correct answer is: It is temporarily located in Texas for less than 175 days

The Freeport Exemption is designed to encourage businesses to invest in inventory while providing tax relief for goods that are briefly stored in Texas before being transported out of state. For inventory to qualify for this exemption, it must meet specific criteria regarding its duration in the state. Inventory may qualify for the Freeport Exemption if it is temporarily located in Texas for less than 175 days. This time frame is crucial, as it ensures that the inventory is not permanently situated in Texas and thus remains eligible for tax exemption. The rationale behind this stipulation is to prevent businesses from using Texas as a long-term storage location, allowing instead for tax relief that supports the shipping and distribution operations. It’s important to consider the other choices. Inventory that consists of outdated items does not inherently qualify for the exemption based solely on its condition. Proving damage and obsolescence is also not a criterion for the Freeport Exemption, as it specifically pertains to inventory duration rather than its quality or state. Lastly, the total amount on a company’s balance sheet being less than $20,000 does not impact the eligibility for the exemption; qualification is contingent on the nature of the inventory and its temporary presence in Texas.