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Texas Legislative Update | January 24, 2019

by DMA Staff | Jan 23, 2019
TX Legislative Header

Sales Tax | Cigarette Tax | Franchise Tax | Motor Fuel Tax | Property Tax
Comptroller's Legislative Proposals

DMA - DuCharme, McMillen & Associates, Inc. provides this information relating to the 86th Texas Legislature Regular Session.

In recent past legislative sessions, the Texas legislature had some interests in providing franchise tax relief. It permanently reduced the franchise tax rates by 25% in 2015, and several legislators had introduced multiple bills that proposed to phase out the franchise tax. However, none of the legislative leaders this session has mentioned the need for franchise tax relief. Instead, their focus is on school finance reform and property tax relief. The number of bills relating to school finance and property tax filed to date seems to bear out that focus.

The legislature’s ability to provide property tax relief is somewhat limited because property taxes in Texas are local taxes. The Texas Constitution prohibits the levy of state property tax, and any limitations on appraised valuation encounter local jurisdictions’ resistance, which is why in past sessions, the legislature has attempted to impose fairness, transparency and other administrative duties on appraisal districts and/or appraisal review boards to address constituents’ complaints of high property taxes. It will be interesting to see what options or approaches that the legislature will consider this session to provide the expressed desire for property tax relief.

Under current law, the appraised value of a residence homestead cannot exceed 10% of the prior tax year’s valuation absent any new improvements, and in past sessions, we saw introduced bills that would reduce the limitation to 5%, but those bills never garnered any traction. Similar bills have been filed this session - HB 383 (Bohac, Dwayne) and HB 946 (Metcalf, Will). Other bills propose to extend the valuation limitation to all real properties, not just to residence homestead – HB 945 (Metcalf, Will) and HB 978 (Bell, Cecil). As in the past, such bills will be opposed by local jurisdictions unless they are given other revenue sources.

Tax Bills

Following are all the tax bills that have been introduced since DMA’s legislative update dated January 9, 2019.

Sales Tax

HB 705 (Geren, Charlie) would permit a county to hold an election that would allow the imposition of an additional sales and use tax at one percent to reduce the county’s property tax rate. The additional one percent would not be considered in determining the combined two percent cap for local sales and use taxes imposed by current law.

HB 966 (Dutton, Harold) would allow a refund for sales and use taxes paid during a calendar year for employing at least one apprentice in a qualified apprenticeship position for at least seven months during the calendar year. The allowable refund amount would be the lesser of 50% of the wages paid to the apprentice during the calendar year or $2,500. A taxpayer would have the option of claiming a refund for sales and use taxes or taking a credit against franchise tax.

Cigarette Tax

HB 627 (Thierry, Shawn) would amend Tax Code §154.021(b) to increase the tax rate on cigarettes weighing three pounds or less per thousand from $70.50 to $82.50 and would allocate the revenue attributable to the tax increase to the Foundation School Fund.

Franchise Tax

HB 710 (Wray, John) would amend Tax Code §171.1012 to allow a taxable entity that transports ready-mixed concrete to include distribution and rehandling costs in the computation of cost of goods sold regardless of whether the taxable entity owns the ready-mixed concrete.

HB 966 (Dutton, Harold) would allow a taxable entity to claim a credit against franchise tax for employing at least one apprentice in a qualified apprenticeship position for at least seven months during the calendar year. The allowable credit amount would be the lesser of 50% of the wages paid to the apprentice during the calendar year or $2,500. A taxable entity would have the option of taking a credit against franchise tax or claiming a refund for sales and use tax paid.

SB 410 (Hughes, Bryan) would permit a taxable entity to claim a credit against franchise tax for an amount equal to ad valorem taxes paid on qualifying inventory located in Texas. The bill proposes to define “qualified inventory” to mean tangible personal property held for sale at retail other than a dealer’s motor vehicle inventory, a dealer’s heavy equipment inventory, and dealer’s vessel and outboard motor inventory and retail manufactured housing inventory.

SB 412 (Hughes, Bryan) would allow a taxable entity to take a credit against franchise tax for ad valorem taxes paid on retail inventory. The credit amount would be the difference between the amount of ad valorem taxes paid on the entity’s retail inventory and the amount of ad valorem taxes that the entity would have paid on its retail inventory if the taxable value of that inventory were based on the entity’s total annual sales divided by 12.

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Motor Fuel Tax

HB 791 (Huberty, Dan) would add a definition of "volunteer fire department" to apply to the current exemption for fuel sold to a volunteer fire department for the department’s exclusive use.

HB 894 (Israel, Celia) would repeal Tax Code §162.501, which currently allocates a portion of motor fuel tax revenue to a specific fund, subject to the use of the Comptroller in the administration and enforcement of motor fuel taxes.

HB 916 (Guillen, Ryan) would allow an exemption from motor fuel taxes for fuel purchased by a rural transit district created under Chapter 458, Transportation Code.

Property Tax (Excludes numerous bills that have been filed relating to residence homestead)

HB 735 (VanDeaver, Gary), HB 841 (Bucy, John) and HB 959 (Johnson, Julie) would authorize a school district that has had its adopted tax rate approved by a tax ratification election during or after the 2006 tax year, to lower its maintenance and operation rate, and would permit the school district within 10 years to increase the tax rate back to the previously approved rate without having to hold another tax ratification election. HB 735 would require the Comptroller to conduct a study to determine how many school districts use this authorization in the following two years.

HB 794 (King, Phil) would repeal Tax Code §23.55 that provides for additional tax (penalty) for changing the use of open spaced land.

HB 827 (Rose, Toni) would amend Tax Code Section 11.24 to expand the local option exemption for a structure or archaeological site to an improvement that is economically or physically necessary to support the continued use or existence of the structure or site if located on the same parcel of land or an adjacent parcel.

HB 845 (Lozano, Joe) would amend Tax Code §313.024(b) to include water desalination projects on the list of eligible property for a limitation on appraised value under Chapter 313 (Texas Economic Development Act). The bill proposes to define “water desalination" to mean the removal of organic and inorganic elements and compounds from saline or biologically impaired waters.

HB 861 (Anchia, Rafael) would amend Tax Code §42.42 to require a tax assessor to include a statement on a supplemental tax bill that is sent to a property owner after the final determination of appeals that penalty and interest will be due “if the additional tax is not paid by delinquency date for the additional tax”.

HB 913 (Shaheen, Matt) would amend Tax Code §26.04 to change the rollback tax rate from 8% to 4%.

HB 945 (Metcalf, Will) and HB 978 (Bell, Cecil) would limit the increase in value for all real properties (not just residence homestead) to 10% and to 5%, respectively. HJR 50 (Metcalf, Will) and HJR 47 (Bell, Cecil) propose a constitutional amendment to enable the limitation.

HB 950 (Lucio, Eddie) would prohibit an appraisal review board from appraising a property at a value greater than the amount shown in the appraisal records.

SB 335 (West, Royce) would expand the definition of community land trust to include a limited partnership controlled by a general partner that is a non-profit and a limited liability company for which a non-profit is the only member.

SB 347 (Flores, Pete) would require a person to be eligible to serve on the appraisal district's board of directors to be an elected member of the governing body of a taxing unit entitled to vote on the appointment of the district's board members.

SB 350 (Powell, Beverly) would repeal the expiration date of Chapter 312 (Property Redevelopment and Tax Abatement Act).

SB 411 (Hughes, Bryan) would allow an owner to elect to have its retail inventory appraised at market value as of September 1 of the year preceding the tax year to which the appraisal applies and would create a special appraisal method for determining a retail inventory’s market value. The market value of a retailer’s retail inventory on January 1st would be the total annual sales, less sales at wholesale and sales to retailers, for the 12-month period corresponding to the preceding tax year, divided by 12. The bill would provide for a phase-in transitional period for nine years beginning January 1, 2020, which would require property tax on retail inventory to be paid at the greater of the market value computed under the special appraisal method or a percentage of the market value determined under current law. The specified percentage would be incrementally reduced each year during the phase-in period. See SB 410 (Hughes, Bryan) and SB 412 (Hughes, Bryan) under “Franchise Tax” for bills proposing franchise tax credits for ad valorem taxes paid on retail inventory.

Comptroller’s Legislative Proposals

During the course of tax administration, it is common for the Comptroller’s office to identify statutes that may need to be clarified or modified for technical reasons and to advise legislators of the need to “fix” those statutes to protect the state’s revenue. For example, in one of our earlier updates, we mentioned that Senator Jane Nelson has introduced SB 70 that embodies the Comptroller’s proposal in response to South Dakota v. Wayfair, Inc. The Comptroller’s office has other proposals in the legislative pipeline and is currently circulating their drafts to taxpayer groups for comments. Here are some of the Comptroller’s proposals in circulation:

  • Sales Tax: The Comptroller plans to reintroduce proposed changes to the resale provision that did not pass last legislative session, which include
    • amending Tax Code §151.006(a)(1) to clarify the definition of “sale for resale” requiring a taxable item be acquired for the purpose of reselling it as a taxable item and removes an alternative language that a taxable item may be acquired for reselling it “with” a taxable item;
    • amending Tax Code §151.006(a)(5) to expand the resale allowance for taxable items that are allocated and billed as a direct or indirect cost with title transfer to all government entities under Tax Code §151.309 and to all organizations exempt under Tax Code §151.310;
    • amending Tax Code §151.006(c) to add that no resale is allowed for taxable items purchased for use by a service provider for all governmental entities or exempt organizations, except certain enumerated federal agencies;
    • amending Tax Code 151.006 to specify that a sale for resale does not include the sale of tangible personal property that will be used, consumed, or expended in, or incorporated into, an oil or gas well by a purchaser who acquires the property to perform an oil well service taxable under Chapter 191;
    • amending Tax Code §151.338 which currently exempts services to repair, remodel, restore tangible personal property if the repair, remodeling, maintenance or restoration is required by statute, ordinance, order, rule or regulation of any commission, agency, court, or political, governmental, or quasi-governmental entity in order to protect the environment or to conserve energy by exempting only separately stated labor to repair, restore, maintain, remodel.
  • Cigarette Tax and Cigar and Other Tobacco Product Tax: The Comptroller plans to clarify what is “first sale” for tax imposition and adds several provisions relating to manufacturing.
  • Motor Vehicle Sales Tax: The Comptroller plans to add provisions for market place provider in Chapter 152, Tax Code, that would make clear who is responsible for collecting and remitting motor vehicle rental receipts tax.
  • Unclaimed Property: The Comptroller plans to require affiliated entities to file combined unclaimed property returns and limit audits for unclaimed property to seven years unless there is intent to avoid delivery. The Comptroller also plans to reintroduce the proposal that would grant subpoena power to the agency, which did not pass last legislative session.

DMA will provide summaries of the Comptroller’s proposals when they are formally introduced.

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