• Dallas

Hidden Opportunities: Breaking Down the GSW District’s MUD Tax

By David Eseke

As a commercial real estate broker who specializes in the Great Southwest Industrial District, I’ve spent a great deal of time and energy on fully understanding the obscure Municipal Utility District (MUD) tax that comes into play in parts of Irving and Grand Prairie. I’ve found there are many misperceptions about the tax and its impact on owners and occupiers.

The MUD began as the Dallas County Flood Control District No. 1 back in 1976. It was renamed as Dallas County Municipal Utility District No. 2 in 1983. It covers about 1,550 acres within the city limits of Irving and Grand Prairie. It’s roughly bounded by State Highway 183 on the north, Valley View Lane on the west, Rock Island Road on the south, and Hardrock Road on the east. In other words, it’s an ideal area for distribution and logistics users, with easy access to State Highways 161, 183, 360, Interstate 30, and DFW International Airport.

The MUD was created to fund flood protection and land reclamation efforts through the issuance of bonds. The goal is to free up valuable land for residential and commercial development. Interest payments on the bonds are backed by special taxes on the district’s property owners and tenants. Both real property (land and improvements) and business personal property (BPP) are subject to the MUD tax, which currently is levied at $2 per $100 of value.

This sounds stiff, but consideration must be given to tax abatements that are available to companies that develop or occupy space in the district. These abatements can not only offset the MUD tax, they can even make leasing within the district a better value.

The abatements are available for real property improvements (everything except the base land) and BPP keep the district competitive. Consider this breakdown of operating expenses on two similar industrial buildings, both built in 2016. One is located within the MUD in Irving, the other within the CentrePort area of Fort Worth.

Tax abatements for MUD developers and tenants are negotiated directly with the Dallas County Flood Control District. All of the industrial properties in the district have abatements of some kind on real property, and it is worth investigating if you are considering one of those facilities.


Tax Exemptions and Rebates

Another common misconception is that if you’re a tenant with high-value inventory, your BPP tax obligation is going to be astronomical. Some jump to this conclusion without investigating the impact of the Freeport tax exemption. In the MUD, most of the taxing entities, including DCFCD No. 1, recognize the Freeport exemption. The City of Irving does not, but instead offers Chapter 380, which functions as a rebate program, rather than an exemption on inventory.

If a tenant’s inventory is turning within 175 days, the MUD BPP tax obligation is entirely neutralized. This is ideal for 3PL users, which typically deal in huge volume and quick turn times.

Let’s look at a real-life example of how this works. Below is a table showing a tenant in the MUD with more than $16 million in BPP. After applying the Freeport exemption to each entity and the abatement for DCFCD No. 1, this tenant’s BPP tax obligation is less than $100,000.

If this same tenant were to relocate to CentrePort in Fort Worth, its tax obligation would be slightly less ($0.15 per square foot on 200,000 square feet). BPP might be costlier within the MUD, however that could be offset by the savings in Operating Expenses when compared to other nearby options. This demonstrates that companies looking for industrial space within GSW need to investigate all options in a holistic manner.

Applications for the Freeport exemption are made through the Dallas County Appraisal District; Chapter 380 rebates can be pursued via the City of Irving.


The Future of the MUD

 So, will there always be a MUD in GSW? The answer is no. At least that’s the plan. The $27 million in debt on the bonds matures in 2032. The DCFCD is committed to paying off the debt by then, and with all of the new development in the district—including Liberty Park GSW North, and Parc GSW—and new tenants like Geodis, Sunoco, and Allegion, the district is generating tax income faster than ever. This will result in a lower MUD tax millage rate in the coming years.

Great Southwest is one of the largest and most active industrial markets in the nation. All options within this bustling district warrant serious consideration. Those in the MUD may require a deeper investigation, but the opportunity to develop or occupy space in such a desirable location can make it well worth the effort.

David Eseke is a Director within Cushman & Wakefield’s Industrial group who specializes in representing tenants and landlords in the Great Southwest Industrial District.

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